Research Teams

Bank regulation in Uruguay during state-led industrialization: between system security and monetary expansion control, 1938-1965

ISSNISSN/ISBN: 0797-5546
ISSNYear: 2015
EditorialEditorial: Revista de Economía (Banco Central del Uruguay), vol. 22, nº1
Nº of PagesNº of Pages: 65-145
This paper analyses banking regulation in Uruguay during the period of state-led industrialization. We aim to fill a hole in the national economic historiography, which has paid scant attention to this topic, and to advance in consonance with recent developments in the Latin American historiography. The major legislative actions taken in regard to the private banking sector during the period are identified and the motives for these actions are examined. In addition, the paper discusses the impact of these measures on macroeconomic indicators and on the banking sector, as observed by contemporaries. The research activities consisted primarily of reviewing the National Register of Laws and Decrees, the recorded sessions of both houses of Congress and the specialized national economic journals of the period, as well as of the construction of a database of banking activity during the period. 

Four major regulatory moments are discussed: in 1938 the first general banking law of the 20th century looked to strengthen the safety and soundness of the banking system; during the 1940s minimum reserve ratios were adjusted as a means of restricting monetary expansion; in the 1950s the rediscount mechanism was liberalized in order to control monetary policy and, to a much lesser extent, credit policy; finally, as a response to Uruguay’s first major banking crisis of the 20th century, a new banking law was passed that looked to increase the safety and soundness of the system, implement greater control over bank assets and apply measures for directing credit towards strategic activities.

In general, banking regulation appears to have focused on safety and soundness, and rather than aiming to direct financial resources towards productive activities, it tended to respond to monetary problems, such as inflation or scarcity of credit. At the same time, even though credit selectivity was an explicit goal of policy makers starting in the late-1940s, it was overshadowed by other problems of greater importance, the very problems that contributed to the collapse of the development model pursued during these decades. 
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