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Chile's president forwards general banking law draft to Congress

Chile's President Michelle Bachelet forwarded the draft of the country's new general banking law to Congress in order to adopt Basel III standards and update the financial system's risk requirements, the president's office said in a news release.

Under the new legislation, banks will use a higher proportion of their own resources to finance their activities while the quality of alternative capital sources will be enhanced, the statement said, noting the current banking law dates back to the mid-1980s.

The new law highlights the modification of capital and risk management requirements and allows banks to better withstand financial shocks, the statement noted. The new requirements will allow banks to adequately absorb any eventual losses derived from instability or a crisis while protecting depositors and taxpayers from bearing these potential losses.

"The proposed standards have been adapted to the country's situation, so as to not generate impacts that could reduce competitiveness in our banking system," said President Bachelet.

In addition, the new law aims to strengthen regulation of the sector by transferring functions from the superintendency of banks and financial institutions, or SBIF, to the commission for financial markets, which is in the process of formation.

Banco Santander Chile and Banco de Chile applauded the initiative and said they are prepared for the requirements, Diario Financiero reported June 12.

"This is very good news not only for the sector, but for the country as a whole," said Santander Chile's head Claudio Melandri, adding that "using their own calculations" the bank will not require additional capital to reach the proposed new standards.

Meanwhile, Banco de Chile's CEO Eduardo Ebensperger reportedly said his institution is "well prepared" for the new capitalization-level requirements. "We have been making adjustments in our last capital increases. We remain solid and consolidated for what's coming," the executive told the publication.

President Bachelet noted that all of the changes entailed in the bill will be implemented gradually, "so that institutions have sufficient time to adapt."