Central Bank of Chile – Financial Stability Report (June 2011)

Vulnerabilities in the domestic financial system and foreign exchange exposures risks leading to a deterioration in Chile's funding conditions, the Central Bank of Chile's Financial Stability Report, published on Thursday, says.

The report identifies three possible risk scenarios in the international economy that may cause a sharp reversal of the country's capital supply and a substantial contraction of external demand. These include: an aggravation of the fiscal and financial situation of peripheral European countries; a worsening of the fiscal situation in the US; and a deterioration of the financial and economic situation in a systemic emerging economy.

The report notes in the first two scenarios the risks originate in the interaction of financial systems whose balance sheets still contain low-quality assets, a weak fiscal situation and slow growth. The third scenario, meanwhile, is more directly linked to potential financial vulnerabilities being created in some emerging economies of a systemic nature, within a context of abundant external capital.

Click here to read the report.