CHILE Law and Practice Contributed by: Alvaro Moraga Fritz and Sebastián Moraga Nazar, Moraga & Cía.
7. Prudential Regime 7.1 Capital, Liquidity and Related Risk Control Requirements The capital, liquidity and risk management requirements applicable to banks in Chile are primarily set forth in Titles VI and VII of the LGB. Title VI addresses the reserve and technical pro - visions that all banks in Chile must maintain and comply with, while Title VII focuses on the rela - tionship between assets and equity in banking institutions. These sections of the LGB adopt international standards established by Basel III. A bank’s effective equity must not be less than 8% of its risk-weighted assets, net of required provisions, or the minimum required under Arti - cles 51, 66 quater and 66 quinquies. Basic capital must be at least 4.5% of its risk- weighted assets and 3% of total assets, both net of required provisions. Common Equity Tier 1 (CET1) is the most robust component for immediate loss absorption, and includes the fol - lowing items as defined in the Compendium of Accounting Standards (CNC): • paid-up capital from subscribed and paid common shares; • premiums paid on instruments included in this capital; • reserves (from profits or otherwise), deprecia - tion and expiry of perpetual bonds; • items in “other comprehensive income”; • retained earnings, current-year results (net of provisions for minimum dividends), and revaluation of perpetual bonds and dividends on regulatory capital instruments; and • non-controlling interest, compliant with CNC and IFRS standards, under specific condi - tions for domestic or foreign subsidiaries.
• the existence of an independent audit func - tion.
6. Depositor Protection 6.1 Deposit Guarantee Scheme (DGS) Paragraph 3, Title XV of the LGB provides for a State guarantee covering obligations arising from fixed-term deposits and savings, whether in domestic or foreign currency, through savings accounts or through nominative or bearer instru - ments issued by a bank or a credit union super - vised by the CMF. This guarantee benefits only natural persons and becomes enforceable upon the declaration of a bank’s forced liquidation. The guarantee covers 100% of the total obliga - tions that such an institution has with a natu - ral person, including adjustments and interest accrued up to the payment date, with an annual cap of 200 UF per calendar year. It also covers 100% of the total obligations of the entire bank - ing system to a single person, with an annual cap of 400 UF per calendar year. It is important to note that the State guaran - tee does not cover fixed-term deposits, sav - ings account balances, or nominative or bearer instruments held by legal entities, including both profit and non-profit institutions. On the other hand, sight deposits and obliga - tions (eg, deposits in checking accounts or sight accounts, deposits in demand savings accounts, or term savings accounts with unconditional withdrawal) are fully covered in the event of a bank’s forced liquidation, regardless of whether the depositor is a natural or legal person.
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