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1 results

  • Tunnelling when regulation is lax: the Colombian banking crisis of the 1980s

  • Carlos Eduardo Hernández, Carlos Caballero-Argáez, Jorge Tovar
  • Journal:
    Revista de Historia Economica - Journal of Iberian and Latin American Economic History / Volume 43 / Issue 1 / March 2025
    Published online by Cambridge University Press:
    26 May 2025, pp. 79-106
    Print publication:
    March 2025
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  • We study the resilience of banks to macroeconomic slowdowns in a context of lax microprudential regulations: Colombia during the Latin American debt crisis of the 1980s. We find that numerous banks underperformed during the crisis, as their shareholders and board members tunnelled resources through related lending, loan concentration and accounting fraud. These practices were enabled by power concentration within banks, lax regulation and the expectation of bailouts. We provide evidence for this tunnelling mechanism by comparing the local banks and business groups that failed during the crisis, the local banks and business groups that survived the crisis and the former foreign banks – all of which survived the crisis. The regulatory changes enacted during the crisis also lend support to our proposed mechanism.