2002 Uruguay banking crisis

The Uruguay banking crisis was a major banking crisis that hit Uruguay in July 2002. In this, a massive run on banks by depositors most of them from neighboring Argentina caused the government to freeze banking operations. The crisis was caused by a considerable contraction in Uruguay's economy and by over-dependence on Argentina (tourism, and construction boom), which experienced an economic meltdown itself in late 2001. In total, approximately 33% of the country's deposits were taken out of financial system and five financial institutions were left insolvent.

According to many sources, the banking crisis could have been avoided if Uruguayan authorities had properly regulated its banks. The Central Bank of Uruguay had trusted international banks to regulate themselves properly and was too lenient and slow in responding to the crisis.

Banco Comercial del Uruguay

In 1990, Chemical Overseas Holdings, Inc. (a subsidiary of JPMorgan Chase) acquired with Dresdner Bank Latinamerika and Credit Suisse First Boston the Banco Comercial del Uruguay (BC), one of that country's oldest and largest national banks. As the years progressed, Uruguay developed as a large offshore banking center for Argentina and Brazil, largely as a result of its lax banking laws and the predominant view among Argentines that Uruguay was a stable place for their savings.

As a result of the banking crisis, some $800 million USD of assets were missing from the BC alone. In the end, five financial institutions failed and hundreds of thousands in Uruguay, Argentina and Brazil were left in dire economic conditions after seeing their bank accounts literally disappear.

In January 2005, the Paris-based International Chamber of Commerce ruled that the Uruguayan government would have to pay USD 120 million to JPMorgan Chase & Co., Dresdner Bank AG, and Credit Suisse First Boston for failing to maintain the solvency of the BCU.

The crisis underscores the three banks’ difficulty in managing risk in developing countries and dealing with local partners during a time of financial crisis. As a result, a class of BC's former depositors is suing the three international banks and the individual directors they appointed to BC's board to recover the losses suffered as a result of the bank's collapse.

Political crisis management

President Jorge Batlle appointed one of his most respected politicians, Alejandro Atchugarry, as Minister of Economics and Finance, a decision which proved vital in the reestablishment of fundamentals for economic recovery.[1]


References

  1. ↑ Atchugarry, ten years after the crisis (Spanish)

External links