The lower house of the Chilean Congress on Oct. 3 has approved the South American country's new banking law, which brings the regulatory framework to international standards in line with Basel III.

The bill will now go to President Sebastian Piñera's desk for his signature within 30 days.

Initiated by the previous administration, the bill, which will mean the "biggest overhaul of [the] bank law in 30 years," will "reduce the contingent liability of the state in the face of a financial crisis, because banks will be better capitalized," Finance Minister Felipe Larraín said.

The modernization bill increases the capital requirements of the banking industry and includes new rules that are meant to strengthen the tools available to financial regulators to prevent banks from becoming insolvent.

"It also constitutes a new tool to strengthen economic growth and leave the country in a better position in the face of a weaker international economic situation," an official statement from the Finance Ministry read.

The new law aims to strengthen regulation of the sector by transferring functions from the superintendency of banks and financial institutions, or SBIF, to CMF, the new commission for financial markets, which officially started operating in January this year.

The government has previously argued that banks will use a higher proportion of their own resources to finance their activities while the quality of alternative capital sources will be enhanced.

In addition, the new law highlights the modification of capital and risk management requirements and allows banks to better withstand financial shocks.

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 new regulation will also include anti-cyber risk rules, which the finance ministry added in the wake of the repeated cyberattacks on Chilean banks in 2018.