Transparency of the Central Bank of Chile Along with helping to mitigate uncertainty, trust is a fundamental asset for institutions and especially for a Central Bank whose mandate is structured from the perspective of the general interest and whose effectiveness depends on the responses of markets and economic agents. On previous occasions, we have argued that this attribute must be systematically cultivated, especially by seeking greater degrees of transparency in dimensions that are particularly relevant to the relationship between the Central Bank and the public. Page 12 of 27  The enactment of the Transparency Law has promoted many advances and initiatives on this matter in Chile. But in addition to complying with this legal obligation, the CBC has voluntarily implemented transparency policies or best practices applicable to the different areas of its work. This includes the recent approval of the Bank’s Transparency Policy,5 a document prepared within the framework of the 2018-2022 Strategic Plan, which aims to strengthen the relevant mechanisms, and is based on the standards contained in the IMF’s Central Banks Transparency Code. However, willingness or good ideas are not enough to enhance transparency in the adoption and implementation of our institutional decisions. It is necessary to periodically evaluate progress made and identify new opportunities for improvement. With this perspective, we have made a special effort to commission assessments on various dimensions of our performance to external and independent observers, who can contrast our efforts with the experiences of other central banks or with duly validated standards.

However, EU supervisory regulations and risk requirements for European financial groups, along with the approach in which they are implemented, are posing significant constrains on our economy and the efficiency of monetary policy to respond to economic developments. Faced with new and stringent capital and risk requirements, banks are trying to comply by adjusting their future business plans and the size and composition of their balance sheets in the economies of the region. These tighter regulations approved by European Supervisory and Banking Authorities and, subsequently, implemented by parent banks have already been accompanied by a decreasing level of credit to the economy. Our research shows that further tightening of crediting, due to the legal reforms currently under way, could have an important effect not only on economic activity but also on commercial bank asset quality itself, in particular situation with non-performing loans. A deterioration of economic activity would play out mostly in the same way, leading to worsening of NPL ratio, leading to smaller banks’ profit and tighter capital constrains, along with slower growth. This second channel is seen as arguably more dangerous, with the empirical research pointing out that the elasticities are close to twice as large for a shock of similar size. Such adjustments are imposing significant constrains on our economies. More directly, we have observed a decrease in financial intermediation, by tightened lending procedures even for economies or sectors that were doing ok during the crises.