Brazil's and Latin America's financial systems have passed the Financial Times magazine test. In an article under the headline of "Latin America sidesteps the worst of crisis," FT correspondents in Sao Paulo and Mexico City elaborate on the region's banking industry and how "by accident and design" in spite of a long history of turbulence, it is weathering the global crisis.
Maybe because of the relatively small size of the system, but definitively because regulations and close monitoring have helped Latin American banks stay away "from all those toxic products" that damaged US banks.
Latin American economies are still paying the price for past home-grown banking crises. But these crises have, by accident and design, allowed the region's banks to weather the global financial storms in relative comfort.
Some banks, particularly smaller ones, have suffered from reduced access to funds. But bankers, financial analysts and government officials say domestic funding markets have for the most part continued to function, in spite of the dislocation in industrialized country markets.
Nonetheless, the result is likely to be leaner times for banks and, as a result, more mergers among the region's lenders. While executives said the merger between Brazilian banks Itaú and Unibanco did not come about as a direct result of the crisis, analysts say smaller banks are likely to be taken over by their larger counterparts in Brazil and elsewhere.
In general, however, Latin America's banks are proving very resilient. This is in part because, although credit growth has accelerated in recent years, the region's banking systems are relatively small.
Only in Chile, which suffered its last banking crisis a quarter of a century ago, does bank lending to the private sector exceed 75% of gross domestic product.
In Brazil and Mexico, which both suffered banking crises in the mid-1990s, it is about 40% and 20% respectively. In Argentina, whose latest bank trauma dates to earlier this decade, it is barely above 10%.
Mindful of past crises, central banks have curbed bank borrowing in dollars and insisted that banks are well capitalized.
In Brazil, close to 30% of bank deposits have been held with the central bank as reserve requirements, giving it a tool, when necessary, to supplement bank liquidity.
Brazil's central bank has also authorized state-owned banks, including Banco do Brasil, to take equity stakes in private banks and to buy loan portfolios. Meanwhile, under Brazilian law, controlling shareholders in banks face unlimited liability in the event of a bank collapse.
In Mexico, foreign banks provide more than 70% of credit to the private sector. Banorte, the fourth- largest, is the only Mexican-owned bank to survive among the top five institutions which also comprise subsidiaries of BBVA and Santander of Spain, Citibank and HSBC.
Some companies have complained as banks cut off credit to repatriate funds to head office. But Guillermo Ortiz, Banco de México governor, told the Financial Times that the central bank had ensured Mexican lenders "stayed away from all those toxic products" that damaged US banks.
He said: "In the domestic banking system, we have had little problem compared to other countries. Of course we have some specific concerns regarding the growth of overdue obligations in credit cards and so on. But this is really not posing a systemic risk."
According to the CNBV, Mexico's banking regulator, banks' capital is more than 15% of risk-weighted assets – almost twice the required amount. A CNBV official said: "The banking system is very strong. It has a sturdy asset base, it continues to issue credit, it is well capitalized and it has plenty of reserves."
In Brazil, nine banks – soon to become eight – account for almost 90% of cash deposits and three are state-owned. But this means more than 150 smaller institutions are heavily dependent on wholesale funding.
Over the past month, the central bank has taken a series of measures aimed at improving liquidity for smaller banks. It has released more than 100 billion (US$ 46 billion) from reserve requirements, freeing smaller banks from holding the reserve.
Last week, it said it would cease to pay interest on reserve requirements for an indefinite period.
"Now the banks have a real incentive to lend," a senior government official told the FT. "There are a lot of small and medium-sized banks that want to borrow, especially ones owned by car companies."
Subsidiaries of car companies such as GM, Ford, Fiat and Volkswagen opened banks in Brazil to lend to customers wanting to finance car purchases.
The government official said the move to stop paying interest would be welcomed by smaller banks but would upset bigger ones.
Márcio Cypriano, head of Bradesco, described the move as a "punishment" and said the bank was likely to raise interest rates to its customers to compensate for the lost interest.