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The Colombian financial system has not suffered major structural disruptions during these months of deep economic contraction and has continued to carry out its basic functions as usual, thus facilitating the economy's response to extreme conditions. This is the result of the soundness of financial institutions at the beginning of the crisis, which was reflected in high liquidity and capital adequacy indicators as well as in the timely response of various authorities. Banco de la República lowered its policy interest rates 250 points to 1.75%, the lowest level since the creation of the new independent bank in 1991, and provided ample temporary and permanent liquidity in both pesos and foreign currency. The Office of the Financial Superintendent of Colombia, in turn, adopted prudential measures to facilitate changes in the conditions for loans in effect and temporary rules for rating and loan-loss provisions. Finally, the national government expanded the transfers as well as the guaranteed credit programs for the economy. The supply of real credit (i.e. discounting inflation) in the economy is 4% higher today than it was 12 months ago with especially marked growth in the housing (5.6%) and commercial (4.7%) loan portfolios (2.3% in consumer and -0.1% in microloans), but there have been significant changes over time. During the first few months of the quarantine, firms increased their demands for liquidity sharply while consumers reduced theirs. Since then, the growth of credit to firms has tended to slow down, while consumer and housing credit has grown. The financial system has responded satisfactorily to the changes in the respective demands of each group or sector and loans may grow at high rates in 2021 if GDP grows at rates close to 4.6% as the technical staff at the Bank expects; but the forecasts are highly uncertain. After the strict quarantine implemented by authorities in Colombia, the turmoil seen in March and early April, which was evident in the sudden reddening of macroeconomic variables on the risk heatmap in Graph A,[1] and the drop in crude oil and coal prices (note the high volatility registered in market risk for the region on Graph A) the local financial markets stabilized relatively quickly. Banco de la República’s credible and sustained policy response played a decisive role in this stabilization in terms of liquidity provision through a sharp expansion of repo operations (and changes in amounts, terms, counterparties, and eligible instruments), the purchases of public and private debt, and the reduction in bank reserve requirements. In this respect, there is now abundant aggregate liquidity and significant improvements in the liquidity position of investment funds. In this context, the main vulnerability factor for financial stability in the short term is still the high degree of uncertainty surrounding loan quality. First, the future trajectory of the number of people infected and deceased by the virus and the possible need for additional health measures is uncertain. For that reason, there is also uncertainty about the path for economic recovery in the short and medium term. Second, the degree to which the current shock will be reflected in loan quality once the risk materializes in banks’ financial statements is uncertain. For the time being, the credit risk heatmap (Graph B) indicates that non-performing and risky loans have not shown major deterioration, but past experience indicates that periods of sharp economic slowdown eventually tend to coincide with rises in non-performing loans: the calculations included in this report suggest that the impact of the recession on credit quality could be significant in the short term. This is particularly worrying since the profitability of credit establishments has been declining in recent months, and this could affect their ability to provide credit to the real sector of the economy. In order to adopt a forward-looking approach to this vulnerability, this Report presents several stress tests that evaluate the resilience of the liquidity and capital adequacy of credit institutions and investment funds in the event of a hypothetical scenario that seeks to simulate an extreme version of current macroeconomic conditions. The results suggest that even though there could be strong impacts on the credit institutions’ volume of credit and profitability under such scenarios, aggregate indicators of total and core capital adequacy will probably remain at levels that are above the regulatory limits over the horizon of a year. At the same time, the exercises highlight the high capacity of the system's liquidity to face adverse scenarios. In compliance with its constitutional objectives and in coordination with the financial system's security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth operation of the payment systems. Juan José Echavarría Governor

Triple arbitration, expectations and economic growth Resumen En este trabajo se vera un aspecto de la financiarizacion, el triple arbitraje. Este se define como la suma de movimientos de capital de corto plazo en America latina entre 2001 y 2014, inducidos por el manejo de la tasa de interes negativa por el fed en la primera decada y media del siglo xxi y su impacto sobre tipos de cambio y los precios de las materias primas. Luego se revisara el impacto de las expectativas desatadas a partir de mayo del 2013, por el anuncio recurrente de parte del presidente del fed que va a terminar con las politicas de expansion crediticia pero no va a subir por ahora la tasa de interes. Eso lo veremos en los precios de las materias primas (especificamente petroleo, cobre y trigo), el tipo de cambio y el crecimiento economico. La hipotesis es que los capitales se mueven por bajas de la tasa de interes de las economias maduras a las emergentes pero regresan por expectativas. De esta manera basta el anuncio oficial de una posible alza futura para producir en el presente un efecto sustancial en los tipos de cambio, tasas de interes y precios de los activos financieros en las economias emergentes, con las consecuencias derivadas en el crecimiento del pib. Abstract In this work an aspect of financialization, the triple arbitration will be seen. This is defined as the sum of movements of short-term capital in Latin America from 2001 to 2014, induced by the management of the negative interest rate by the Federal Reserve in the first decade and a half of the 21st century and its impact on exchange rates and the prices of raw materials. Then appellant will check the impact of the expectations untied from March, 2014 by the advertisement on behalf of the President of the fed, Janet Yellen, who will not raise “now” the rate of interest in The United States. We will see it in the prices of the raw materials (specifically oil, copper and wheat), the exchange rate and economic growth. The hypothesis is that capital move for casualties of the interest rate of the mature economies to the emerging but return by expectations. In this way just the official announcement of a possible rise in future to produce a substantial effect on the exchange rates, interest rates and prices of financial assets in emerging economies, with consequences on the growth of gdp in the present