The banking sector in Panama plays a crucial role in the country’s economy, as well as its integration into the global financial system. As an international bank creditor, understanding the intricacies of the Panamanian banking system, the legal framework, and steps to safeguard your interests in the event of a bank failure is essential. Banking law in Panama is governed primarily by the Superintendency of Banks (SBP), the main regulatory authority, and the Banking Law (Decree Law 9 of 1998). This legal framework outlines the rules and regulations for licensing, supervision, and resolution of banks. In cases of bank failure, the SBP, in conjunction with the Deposit Insurance System (DIS), has the authority to intervene and implement resolution measures to protect depositors and maintain financial stability.

Several Caribbean banks and institutions operating in Panama and abroad have faced significant fines for non-compliance and illegal activities. Some notable examples include the following:

FPB Bank (Panama): FPB Bank, a Panamanian bank with ties to Brazil, faced regulatory action in 2016 when the Superintendency of Banks of Panama (SBP) imposed a fine of $2 million for non-compliance with anti-money laundering (AML) regulations. The fine resulted from an inspection that revealed deficiencies in the bank’s internal controls and customer due diligence processes. Despite the penalty, the SBP did not shut down FPB Bank but instead required the bank to implement corrective measures to strengthen its AML compliance framework and improve its risk management practices.

Banco Latino (Venezuela): One of the largest banks in Venezuela faced a bank failure due to mismanagement, fraud, and a severe economic crisis. The Venezuelan government intervened by taking over the bank, replacing the management, and injecting capital to stabilize it. The bank was eventually merged with another institution.

Baninter (Dominican Republic): The second-largest commercial bank in the Dominican Republic Baninter, collapsed due to fraud and inadequate regulatory oversight. The Central Bank of the Dominican Republic intervened, providing liquidity support to prevent a systemic crisis. The bank’s assets were eventually sold to other financial institutions, and its management faced criminal charges.

Banco Continental (Honduras): In 2015, Banco Continental, one of the largest banks in Honduras, was liquidated following accusations of money laundering by the U.S. Treasury. The Central Bank of Honduras appointed a liquidator to oversee the bank’s operations, protect depositors, and facilitate the transfer of its assets and liabilities to other financial institutions.

In each of these cases, the respective authorities intervened to address the bank failures by implementing various measures, such as providing liquidity support, replacing management, injecting capital, liquidating the banks, or transferring assets and liabilities to other financial institutions. These actions aimed to protect depositors, maintain financial stability, and minimize the impact of the failures on the broader economy.

Bank Failure in Panama

Bank failure in Panama is defined as a situation where a bank is unable to meet its obligations, maintain its solvency, or comply with regulatory requirements. Factors that contribute to bank failure include inadequate capitalization, poor corporate governance, and exposure to high-risk assets.

Common reasons for bank failure in Panama include inadequate capital, mismanagement, and macroeconomic shocks. The determination of bank failure in Panama is based on a comprehensive assessment by the SBP, which considers the following:

Capital adequacy: Banks must maintain a minimum capital adequacy ratio, as defined by the Basel III standards.

Asset quality: The SBP evaluates the bank’s loan portfolio, non-performing loans, and risk exposure.

Management capability: The competence and integrity of the bank’s management and board are assessed.

Earnings: Banks must demonstrate profitability and financial resilience.

Liquidity: Banks are required to maintain a sufficient level of liquid assets to meet short-term obligations.

The SBP, as the bank supervisor in Panama, has the legal mandate to conclude a bank’s failure or likelihood of failure. The SBP’s authority is derived from the Banking Law, which grants it powers to supervise, regulate, and intervene in banks to ensure financial stability. Once a bank failure is concluded, the SBP may take various measures, such as:

  • Imposing corrective measures, including recapitalization or restructuring.
  • Temporary intervention to manage the bank and protect depositors.
  • Appointing a statutory administrator to oversee the bank’s operations.
  • Coordinating with the DIS to reimburse insured depositors.

Bank Supervision and Resolution Planning

The SBP employs a risk-based approach to bank supervision and resolution planning, ensuring the preservation of critical functions and the bank’s continuation during financial distress. This approach includes regular monitoring, stress testing, and periodic evaluation of a bank’s financial and operational stability. Additionally, the SBP requires banks to develop and maintain recovery and resolution plans outlining their strategies for managing financial distress and restoring viability. Upon determining a bank’s failure, the resolution authority in Panama takes several steps:

  • Assess the bank’s financial condition and determine the appropriate resolution measures.
  • Coordinate with relevant stakeholders, including the DIS and foreign regulators, if necessary.
  • Implement resolution measures, such as recapitalization, business restructuring, or asset separation.
  • Monitor the progress of resolution measures and make necessary adjustments.

Orderly Exit of Non-Viable Firms and Bank Liquidation

To ensure the orderly exit of non-viable banks from the market, the SBP collaborates with other relevant authorities, such as the DIS, to implement resolution measures, protect depositors, and maintain financial stability. Bank liquidation in Panama involves the winding down of a failed bank’s operations and the distribution of its assets to satisfy the claims of creditors and depositors. This process is governed by the Banking Law and is overseen by a statutory administrator or a liquidator appointed by the SBP.