The IDB Trading Investments Portfolio

The trading investments portfolio of the Inter-American Development Bank works as precautionary source of financing in case access to capital markets is cut or restricted during distress situations. The global financial crisis led to the reduction in the market price of some of the securities in the portfolio. As a result, the Bank registered accounting losses to reflect the lower value for these assets.

However, in the second quarter of 2009, the IDB began reversing some of these market-to-market losses. As a result of the improved performance in the portfolio, the IDB registered an operating income of $1.3 billion in 2009 compared with a loss of $972 million a year earlier.

The improved performance resulted from an increase in the price of assets in the Bank’s trading investments portfolio and repayments at full par value of securities that had been previously marked down. As of the end of December 2009, the portfolio had a net mark-to-market gain of $528 million compared with a net mark-to-market loss of $1.6 billion in 2008.

The losses in the trading investments portfolio had little impact on the Bank’s ability to meet the region’s development needs. The IDB has dramatically increased lending to Latin America and the Caribbean during the global financial crisis.

Throughout the crisis, the IDB has taken actions on its investment portfolio, by adopting more stringent constraints on concentration, term, duration, rating, maturity and issuer limits. In addition, the Bank has improved communication and monitoring of the portfolio’s performance with daily market review meetings and a monthly report for top management and the Audit Committee of the Board of Directors.