This week, Venezuela’s National Assembly declared its banking industry to be a public service, requiring banks to contribute to the public good. Now, under the new Law of Banking Institutions, Venezuela's private banks will be regulated in the public interest and required to serve, not only the interests of private stockholders, but the interests of depositors, customers and the public at large. Under U.S. law, U.S. corporations only owe a duty to their stockholders.
Juan Reardon, writing in yesterday's venezuelanalysis.com, reports that the response from some sectors of the opposition Venezuelan financial community has not been favorable:
Opposition economist Alexander Guerrero called the law “a 50 year step backwards” because it “takes away banks’ participation in the non-banking sector, such as stock exchanges, investment institutions, insurance companies, etc.”
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According to opposition legislator Juan José Molina, the new banking law is an “attack on economic liberty, on the constitutional right that citizens have to compete freely, to commercial incentives.”
Ricardo Sanguino, a legislator in the National Assembly from Venezuela’s United Socialist Party (PSUV) strongly disagrees:
The law is born of “a necesity in Venezuela to consolidate a responsible financial sector...With this law we are restricting unregulated speculation...[Now] there is absolutely no chance that a banking institution becomes involved in irregularities, as they have done in the recent past,” said Sanguino.
The new law provides Venezuela with the equivalent of Franklin Delano Roosevelt’s 1933 Glass-Steagall Act, the legislation which prohibited depository banks from owning other financial companies, such as investment banks, insurance companies and brokerage houses.
In the U.S., the 1999 repeal of the Glass-Steagall Act has been blamed for allowing U.S. banks to indulge in the wave of speculation and creative (some say criminal) monetary policies which has caused the current economic crash.
Several Venezuelan banks, modeling themselves after our Wall Street bankster mobs, had engaged in some of the same speculative practices which derailed the U.S. economy. The banks used their depositors' funds to speculate and lost those depositors' funds on bad bets.
Venezuelan President, Hugo Chavez, and his socialist government, far from bailing out the criminal banking speculators, closed those banks, paid back the depositors and prosecuted their managers for fraud. Here, some bank CEOs are actually sitting in jail!
Reardon reports that Venezuela’s new banking law requires that private banks put at least 5 per cent of their pre—tax profits into projects delineated by the country’s consejo comunales, local community councils which democratically vote on a community’s priorities for repairs and improvements. The law also requires that the interests of the bank’s employees must be protected. Banks must keep the equivalent of 10 per cent of their assets in a restricted fund to pay for wages and pensions for their workers in the event of the bank's bankruptcy. Banks are restricted in the percentage of their funds which may be loaned.
The new law does not nationalize all the banks in Venezuela, 70 per cent of which are privately owned, but it does put them under stricter supervision, requiring the banks to submit reports every three months to the Superintendent of Banking Institutions on the status of their solvency. The law mandates that the Superintendent of Banking Institutions makes these reports available to the public at large.
Thus does Venezuela's socialist government deal with its over-reaching private banksters. U.S. Treasury Secretary, Tim Geithner, would undoubtedly be appalled at this “reactionary” Venezuelan law. Imagine declaring banking a public service and mandating that it be conducted honestly. What a terrible 50 year step backward!