“Are you saying that the state buys Banco Galicia shares to avoid its bankruptcy?”asked Eduardo Duhalde in January 2002.
The banking system and the lives of depositors had been altered by the corralito and the corralón. Basically, there was no free availability of savings for private individuals. Banco Galicia, the largest private and national bank of the time, was on the brink of bridging.
“How much would we pay?”Duhalde asked.
“One Dollar, Mr. President”replied Mario Blejer, head of the central bank.
“A dollar?! Too expensive. Bring me another solution, but the state can’t buy a problem like this for a dollar in the midst of this crisis.”
Blejer, who in recent days is following minutely what is happening in the United States with a series of banks that had to be bailed out by the state, like Galicia that time, and others that are there on the razor’s edge – all of this broke out after The Federal Reserve has raised the interest rate nine consecutive times in the last year, going from 0% to 5%, recalls the former president’s astuteness.
“It was a great response to say that it was expensive to buy Banco Galicia for a dollar. It would have spelled trouble in a lot of ways because of what happened next”. It was the starting 1-1.
The question had in fact been raised for the first time by Blejer in a meeting with Jorge Remes Lenicov, minister of the Economy, and his number two, secretary of Economic Policies, Jorge Todesca, who with Mauricio Macri would assume the leadership of INDEC and of its reconstruction after the phase of Kirchnerism.
The head of the plant talked to them about the concept too big to fail (too big to fail, in English) of Banco Galicia, owned by Eduardo Escasany, arguing that it was his responsibility to ensure the stability of the rest of the system and he was concerned about that bank in particular.
But for a Peronist government, helping a banker was more than meeting the oversight criteria that the BCRA had to meet.
“We are Peronists but not stupid, Mario”, Todesca interrupted him.
Blejer persisted and together with Remes they went to see Duhalde in Olivos. It was there that the president rejected the central proposal, saying that he would not buy the bank even for a dollar and that they should look for another solution.
With the options to let the bank fail and the exclusion of the state participating in the entity, the alternative was for the BCRA to keep the shares while the international creditors were summoned or transferred to other shareholders, position that finally occurred. The board of directors of the bank intervened.
“Escasany hasn’t spoken to us for years”recalls a former official today.
A change was also introduced in the Organic Charter of the Central, expanding the rediscount limit to assist banks in difficulty. The IMF supported and the matter was taken to Congress so that it was not just the government that took charge of the assistance policy. Senator Cristina Fernández de Kirchner did not support the initiative. “The crisis will deepen,” she said during the session.
A long line of bankers crowded the counter of the Central Bank asking for loans from the monetary authority to deal with the dripping of deposits.
In May 2002, Galicia’s capitalization and liquidity plan was approved, which provided for the exit from the board of directors of the main shareholders. It received a jolt of new contributions, capitalization of debts and even a loan from domestic and foreign banks.
The BCRA financed a third of the decline in deposits with the rediscount policy – credit lines to banks to give them liquidity in the midst of the crisis. 80% was concentrated in four banks. In August 2002, after the worst part of the crisis, Roberto Lavagna, Remes’ successor, ordered the tap to be turned off.
“As a result of all this assistance there have been no bank failures”, Remes Lenicov also recalls today. Galicia was the entity that received the most rediscounts in May 2002, above other public and private banks. “It is worth mentioning what would happen a few years later with Lehman Brothers on September 15, 2008, all analysts agreed that this was a mistake and that it aggravated the crisis”.
In the United States, Treasury Secretary Janet Yellen hinted last Thursday that there are options to give more guarantees to deposits above $250,000, an exception that has already been made with banks Silicon Valley Bank and Signature due. weeks ago. “They could also be guaranteed if small institutions were to suffer runs and pose a risk of contagion,” she added.
Yellen’s words, however, weren’t quite as clear as she noted The Wall Street Journal In his op-ed on Friday: The official hinted hours earlier that if a bank was going to fail, it would. What will he do then, will Biden have the offer to buy a bank for a dollar these days? He panic challenges theories and elicits unexpected reactions. Deutsche Bank shares fell 10% on Friday.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.