Bank Failure Reshapes Life in El Salvador

SAN SALVADOR â€”  As Salvadoran depositors waited in lines that stretched for blocks to reclaim a portion of their life savings, U.S. government investigators were called in to help decipher a $15-million bank failure that has shaken this country’s financial system and put five prominent business leaders in jail.

The collapse of Financiera Insepro has left more than 1,000 account holders--from middle-class housewives clanging pots outside the bank regulators’ offices to the usually circumspect Archbishop Fernando Saenz Lacalle--demanding justice.

It has forced the country’s banks to shoulder part of the burden for repaying small depositors to prevent runs on their own institutions following the second alleged bank fraud in less than a month.

And, remarkably, according to some longtime observers, the scandal has openly split this nation’s oligarchy.

For two weeks now, investigators almost daily have released sordid details of the alleged fraud, such as information that the nation’s top banking regulator--fired for failing to act quickly enough to close down the ailing institution--is engaged to the bank chairman’s secretary.

Until this month, the names of the five directors facing fraud charges were more likely to be found in the social register than on a police blotter.

Chairman Roberto Mathies Hill, for example, was director of the Salvadoran Soccer Federation and the business community’s representative to the governing committee of the extreme right-wing Nationalist Republican Alliance (Arena) political party.

The day after Mathies’ arrest, Arena Chairwoman Gloria Salguero Gross--herself a member of a prominent family--said flatly, “I believe in Bobby’s honesty.� Within days, she was telling reporters that he had resigned from his party post a month before, adding, “If they prove him guilty, we, as a party, defend no one.�

Mathies’ cousins--shareholders in family businesses implicated in the scandal--took out full-page advertisements denying that they were involved in his financial dealings.

“These guys usually stick together, at least publicly,� said one foreigner who has lived in El Salvador for nearly a decade.

President Armando Calderon Sol, a member of Arena, told reporters that the arrests signal an era of fairness. “El Salvador is a new country where no one has impunity,� he said.

But depositors insist that the arrests are insufficient. They want their money back. Those with deposits of less than $6,300 were repaid by other banks, which regulators will later reimburse with the assets of Financiera Insepro, according to the banking association.

The bankers decided to cover small depositors when their own customers began closing out their accounts the day after the arrests.

As for customers with balances exceeding $6,300 or accounts in sister companies that were not legally authorized to accept deposits from the public but nevertheless did, they are still waiting to learn whether they will ever see their money again.

“There must be justice, which is more than legality,� said Saenz Lacalle, who kept $172,000 of the church’s money in an uninsured subsidiary of the failed bank. “Those who have done damage, committed fraud, have the obligation to pay. Those who have diverted funds have the obligation to give them back.�

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But before the alleged culprits can be forced to give anything back, the money must be found. Mathies and his associates are accused of lending $15 million--90% of their financial group’s funds--to four companies.

Bank directors were also major shareholders in those companies. The debtors regularly wrote monthly checks to cover their loan payments; the checks were not cashed.

Now, regulators are searching bank databases to try to learn where the money went.