So the provinces settled for purchasers that were not first-tier banks. Many of them were small wholesale banks that had to make the difficult transition to retail banking. In return, provincial politicians were granted restrictions on branch closings and layoffs of bank employees. Both types of accommodation were costly to the purchasers and the provinces. These transactions probably could not have been completed without long-term loans from the Fondo Fiduciario.
Initial indications are that the situation has improved in most provinces.
And the provinces experiencing post-privatization difficulties tend not to have participated fully in the Fondo Fiduciario privatization program. But the privatized banks rely on their service contracts with provinces to generate a big share of their income and are having trouble making the transition to commercial banking. It is uncertain whether the newly created banks are sustainable. But at least a fiscal burden has been lifted from the provinces. The full report is available in PDF format.