PARAGUAY Law and Practice Contributed by: Juan Fiorio, Alejandra Corrales and Jean Saavedra, Fiorio, Cardozo & Alvarado
Resolution Mechanisms The BCP can implement various resolution mechanisms for failing banks, including inter - vention, administration, or liquidation, depend - ing on the severity of the bank’s financial issues. During intervention, the BCP assumes control to manage and stabilise the institution, while liqui - dation involves orderly closing the institution and Paraguay has not fully implemented the Finan - cial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes. However, local laws provide a framework for the BCP to take early intervention measures and resolve failing institutions to maintain financial stability. Insolvency Preference Rules In cases of insolvency, Law No 2334/03 estab - lishes a hierarchy for the payment of obligations, referred to as the “exclusion balance.” This pri - ority order ensures that certain creditors are paid before others based on the nature of their claims. The obligations are divided into three levels of priority: • First-order obligations: settling obligations. FSB Key Attributes (a) Guaranteed deposits: Private depositors and public funds from the social security system. If funds are insufficient to cover all deposits, a minimum guaranteed amount per depositor is prioritised, and any remaining amounts are distributed using a linear increment method, pro - hibiting proportional allocation based on deposit size. (b) Cash mandates and tax revenues: This includes funds held in trust, tax collec - tions, and similar amounts registered in the entity’s financial statements before the resolution process begins, particularly
odically monitored by the Superintendency of Banks, which requires banks to keep a set pro - portion of capital against risk-weighted assets. Liquidity Requirements Paraguayan banks must comply with liquidity requirements designed to ensure they can meet short-term obligations. These include maintain - ing a specific level of liquid assets relative to liabilities, as mandated by BCP regulations. The BCP periodically adjusts these requirements depending on economic conditions. Risk Management Banks are required to implement robust risk management systems that cover credit, market, operational, and liquidity risks. These systems must be regularly assessed and reported to the Superintendency of Banks to ensure compliance While there is no specific classification for sys - temically important banks in Paraguay, larger institutions are subject to more stringent over - sight and may be required to maintain higher capital and liquidity levels to mitigate the risk of financial instability. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework The framework for insolvency, recovery, and resolution of banks in Paraguay is primarily governed by Law No 861/96, which grants the BCP powers to intervene in distressed financial institutions to protect financial stability. and address any vulnerabilities. Systemically Important Banks
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