Colombia’s peso spiked after government officials on Tuesday announced that Bancolombia will take over bond trading of InterBolsa, Colombia’s largest, failed brokerage firm, Bloomberg news reported.
News that Colombia’s largest bank will take over the failed wing of InterBolsa restored investor confidence causing the peso to appreciate 1% – the biggest rally in four months.
The government’s agreement with Bancolombia prevented InterBolsa’s liquidity crisis from infecting the rest of the Colombian stock market.
“The fact that a trustworthy party will take over those operations brings confidence back into the market,” said Camilo Perez, the head analyst at Banco de Bogota, Colombia’s second-largest bank.
Immediately after InterBolsa failed to make a payment on an $11 million loan claiming that they were experiencing a “temporary funding shortage”, officials stepped in to prevent a domino effect from capsizing the rest of the financial market.
Colombia’s Minister of Finance, Mauricio Cardenas, assured that InterBolsa’s problems were unique and not indicative of a “systemwide weakness.”
InterBolsa’s problems stemmed from excessive risk-taking tied to the company’s structuring of repo agreements.
The Finance Minister then reiterated Colombian President Juan Manuel Santos‘ comments that all of InterBolsa’s investors are protected and won’t face the financial ramifications that InterBolsa shareholders will.