Callable capital at the IDB is legally valid and binding and could be activated by Executive Directors. It remains a highly remote scenario, in line with the Bank’s solid financial policy framework. 

A new report published by the Inter-American Development Bank (IDB) brings greater clarity and transparency to the usage of callable capital, a portion of capital subscribed by the IDB shareholders but not paid unless certain conditions are met. The review is part of the IDB’s efforts to implement the recommendations contained in the G20-sponsored Independent Review of Capital Adequacy Frameworks. It included legal aspects, finance and risk factors, and the process through which shareholders could respond to requests for callable capital.  

“We are proud of what we have accomplished working together with Shareholders and other MDBs to clarify the process around such a relevant feature in MDBs’ capital structure” said Gustavo De Rosa, Chief Financial Officer and General Manager of the Finance Department at IDB. 

The review covered three work streams: 

•    a legal pillar that looked at the Agreement Establishing the Inter-American Development Bank, the Bank’s by-laws, existing resolutions of the Board of Executive Directors, and other Bank policies to clarify the process to call callable capital;

•    a finance and risk pillar that included a reverse stress testing exercise to assess the probability of a call on callable capital; 

•    and a shareholder process pillar that encompassed the review by a group of member countries of their processes to respond to a call on callable capital. 

The report Callable Capital of the Inter-American Development Bank, conducted by IDB management, concluded that all participating shareholders consider callable capital obligations legally valid and binding. Some shareholders have mechanisms in place to carry out a call on callable capital on short notice, and others have accelerated processes that could be activated. 

The review also noted that under existing Bank rules, the Board of Executive Directors is empowered to make a call on callable capital. 

A call on callable capital remains a highly remote scenario, as confirmed by the reverse stress testing exercise, in line with the Bank’s solid financial policy framework built to preserve the Bank’s credit rating. IDB Senior Management is confident that credit rating agencies will find the analysis and information included in the report useful in their assessment of the value of callable capital and look forward to engaging with them to discuss this further. 

The African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the International Bank for Reconstruction and Development will also publish similar reports.