1. 2016
Latin America-U.S. Symposium on Building the Financial System of the 21st Century

2. Session 1
Capital Markets Development: Pension Fund Systems and Opportunities for Investment Funds

3. Pillars of Latin American Pension Systems
Intergenerational solidarity – pay-as-you-go or subsidized
Can include other welfare benefits
Individual accounts (Chile, other Andean)
Employer-based
Public, SOE, or private
Variations across countries

4. Pension System Sustainability
Actuarial
Longer lifespans, falling birth rates
Informal economy
How to include informal workers
Movement in and out of formal sector
Sufficiency of pensions
Contribution rates
Low wages

5. Pension Investment What assets?
Driven by regulation, varies by country
Expansion of asset classes: foreign, infrastructure, private equity, etc
Room for hedging, especially forex
Who manages?
Professional managers
Subcontracting a portion of funds
Danger of politicized investment committees
Capabilities and costs
Risk management
Costs may increase

6. Pension Governance How is accountability ensured?
Professional management
Regulation and government oversight
How to ensure autonomy of regulators?
Coordinating regulators
Oversight boards – but membership can create problems
Risks and returns
Who chooses strategies and assets in funded plans?
Who bears the risk?
Are citizens prepared to accept consequences of risk?
Infrastructure raises new risks and assessment challenge

7. Economic Effects Dangers of fiscalization of pensions
Capital accumulation
Funded vs PAYG (Pay as you go)
Way to fund needed infrastructure investments
Matches liability structure more closely
Risk of political interference
Capital market development
Funded plans can invigorate capital markets
Buy and hold strategies may cause secondary markets to lag
Concentration can retard market development
May increase management fees
But scale is important for capabilities, compliance

8. Political Sustainability
Citizens’ expectations exceed earned benefits
Low wage base, insufficient years of contribution, investment returns
Societal expectations of living standards
Minimum solidarity pensions are at poverty level
Windows of opportunity for change
Economic challenges only increasing
Harder in periods of low return
Need to act before population structure ages

9. Session 2
Impact of G-20 Financial Regulation on
Latin American Markets

10. Rationale driven by global crisis in developed world
G-20 Agenda
Main pillars
Capital, liquidity, leverage
Resolution framework
Assessing risk
Rationale driven by global crisis in developed world
Prevent excess risks
Eliminate Too Big to Fail (TBTF)
Prevent taxpayer bailouts
But perhaps fighting the last (developed country) war?

11. Global Effects Effects on banks and banking Broader effects
Safer but more conservative
Less global
Increased costs of compliance
Less competition
Fewer loans, especially to SMEs
Broader effects
Shifting activity—and risk—to shadow banking & fintech
Reduced credit provision
Innovation more likely in less regulated sectors
Do benefits outweigh costs?

12. Effects on Latin America
Does G-20 agenda fit Latin America’s needs?
US/EU model is one-size-fits-all
Latin American supervision shielded region from global crisis
Mexico, Brazil, Chile learned from their own crises in 1990s
Latin America an early and enthusiastic adopter of new rules
But have banks’ practices really changed?
Increased compliance costs
Crowds some SMEs and startups out of bank lending
Some international banks withdrawing from region
Derisking
Costs outweigh benefits, especially in retail

13. What Regulations Does Latin America Really Need?
Transparency and disclosure
Audits
Corporate governance
Managing conflicts with controlling shareholders (especially SOEs)
Corporate versus individual responsibility for violations
Auditor liability
Risk management
Assessment and provisioning
Preventing the next crisis
Shadow banking and fintech

14. Potential Pitfalls Contagion Recent political developments
US has weakened ability to respond to future crises
Especially lender of last resort
Lack of coordination could lead to ringfencing by regulators
Recent political developments
EU/Japan concerns re Basel III
Trump administration
Dodd-Frank—repeal or tweak?
More constraints on Fed?
Protectionism
Impact on international cooperation, including FSB

15. UPCOMING EVENTS Europe-U.S. Symposium Frankfurt, Germany
March 29-31, 2016
China – U.S. Symposium
Armonk, NY
May 18-20, 2017
To receive an invitation to other PIFS Symposia,
or to recommend your colleagues for participation, please contact:
James Shipton