A central task performed by the Central Bank aimed at financial stability is the publication of the Financial Stability Report, twice a year. The banking regulation has evolved gradually and steadily, adopting proven international standards and best practices. A new General Banking Law will provide for a gradual convergence to the Basel III framework, which will raise the quality, consistency and transparency of the capital base; strengthen risk hedging; introduce leverage limits; promote a countercyclical capital framework; and introduce a global liquidity standard. These requirements will be implemented gradually through 2019. They will provide higher stability and sustainability and contribute to Chile’s reputation and access to international markets. Chile largely complies with the Principles for Financial Market Infrastructure established by the BIS. An assessment made by the World Bank and the IMF last year identified a high level of compliance with the principles on the part of the entities assessed, as well as the authorities. The main conclusion was that Chile has sound and robust financial market infrastructures, in line with international standards and best practices on risk management, the finality and irrevocability of settlement, efficiency and transparency. The Chilean financial market is, in general, deeper than those of other Latin American countries, with larger institutional investors and greater maturity. Banks' capital adequacy indicators are similar to those of other economies in the region, but lower than in OECD countries, while their exposure to credit risk is low relative to both OECD and emerging economies.

The World Economic Forum Banking Strength index shows that the Chilean banking sector is very strong, as it ranks in the 11th place in the world. Let me finish by pointing out the relevance that the exchange rate derivatives market has had in favoring both financial stability and the conduct of the flexible inflation targeting scheme in Chile. This market is not as deep as it is in developed countries, but it has experienced significant growth of more than 10-fold since 1998, fueled in part, as I already mentioned, by the floating exchange rate regime. The role of pension funds has been significant as well, as they maintain a large positive foreign financial position, and keep hedging against exchange rate risk even above the regulatory requirements, especially in the aftermath of the last crisis. Thanks to these factors and a favorable regulation, Chile shows a high level of penetration of financial derivatives compared to other emerging economies and countries in the region. All this has contributed to a limited exchange rate mismatch of corporations. Today the share of firms with a mismatch over 10 percent of their assets is below 10 percent, down from around 20 percent before the Crisis. Hence monetary policy can be conducted in a countercyclical manner, without the need to manage the exchange rate. However, as the recent experience in developed countries has revealed, the rapid development of derivatives 5  markets also poses challenges to regulators due to their complexity and potential concentration of risks in a few entities.