BCR and CABEI sign Line of Credit contract for $200 million to strengthen the financial system of El Salvador

The Central Reserve Bank (BCR) and the Central American Bank for Economic Integration (CABEI) signed a $200 million-dollar credit line contract on May,24 to strengthen the BCR’s role as the Last Instance Lender (LIL); that is, to support solvent financial institutions that have transitory liquidity problems, thus maintaining the stability of the financial system.

With the increase in the credit line, CABEI plans to strengthen the country’s financial system, helping to maintain the credibility of financial institutions to meet liquidity needs, mainly to respond to their depositors and other creditors, contributing to competitiveness.

The BCR’s Organic Law establishes that “the Central Bank shall have the fundamental purpose of ensuring the stability of the currency and its essential purpose shall be to promote and maintain the most favorable monetary, exchange, credit and financial conditions for the stability of the national economy,” and it does so, among other aspects, “to maintain the liquidity and stability of the financial system.”

In order to comply with this legal mandate, the function of the Last Instance Lender traditionally exercised by the central banks becomes relevant and, for the specific case of El Salvador, with its dollarized economy, this becomes more relevant, which is why the BCR was strengthened in 2011 through the reforms made to the Organic Law of the Central Bank.

The credit signature took place in the Museum and Library of the Central Reserve Bank “Luis Alfaro Durán” in the Historic Center of San Salvador, where the President of the BCR, Dr. Óscar Cabrera, and the CABEI Director for El Salvador, Guillermo Funes, participated.

Original source: BCIE
Published on 24 May 2018