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Transformation of the Ecuadorian financial system: regulation and response

Luisa Ana Unda (Department of Accounting, La Trobe University, Melbourne, Australia)
Julie Margret (Department of Accounting, La Trobe University, Melbourne, Australia)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 9 February 2015

Abstract

Purpose

The aim of this study is to analyse the transformation of the Ecuadorian financial system using the regulatory dialectic approach (Kane, 1977). This research examines the initial conditions and motivating factors of the reform process, as well as the interplay between government and bankers during the period 2007-2012.

Design/methodology/approach

Kane’s regulatory dialectic suggests that regulation of financial institutions is a series of cyclical interactions between opposing political and economic forces. Three main stages are identified: thesis (measures and regulatory actions), antithesis (avoidance/lobby against those reforms) and synthesis (adaptive reregulation resulting from the interaction between interest groups).

Findings

Since 2007, the government focused on regulating interest rates, developing a liquidity fund for banking emergencies, increasing taxation and restricting international capital flows. These government initiatives took place against a background of conflicting interests. Private bankers opposed the majority regarding them as burdensome new rules, rather than enlightened reforms. Publicly, these reforms as intended by the government were seemingly supported. Finally through the political process, they were approved. To date, these reforms have strengthened the financial system, produced encouraging social policy results and placed the financial sector to serve the government’s development strategy.

Originality/value

Using Kane’s notion of regulatory dialectic, we explain the process of financial reform in Ecuador as part of a cyclical interaction between opposing forces. Drawing on this framework enabled insight into the nature of government intervention. Hence, we show how that intervention affected the growth, development and structure of the banking system.

Keywords

Citation

Unda, L.A. and Margret, J. (2015), "Transformation of the Ecuadorian financial system: regulation and response", Journal of Financial Regulation and Compliance, Vol. 23 No. 1, pp. 84-102. https://doi.org/10.1108/JFRC-02-2014-0016

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited