The Central Bank of Costa Rica makes banking policy in Costa Rica. The SUGEF (the General Supervisory Agency of Finance) enforces compliance with Central Bank policies. The legal reserve requirement on sight deposits is 15 percent. Total assets may not exceed 11 times a bank's equity, and the legal lending limit is 20 percent of total capital per customer.

There is no deposit insurance on private banks, but the Costa Rican government backs the state owned banks. Banco Anglo Costarricense was closed by the Central Bank's examiners office in 1995 after incurring US$ 200 million in losses due to bad loans and dubious investments in Venezuelan bonds that subsequently disappeared. Criminal proceedings were successful against members of the bank's board and management, many of whom are serving prison sentences. Not one depositor lost money in this scandal.

Private commercial banks are relatively new to Costa Rica, since only the state-owned banks could offer checking and passbook savings accounts to the public until the banking law was changed in 1995. This law also granted private banks access to the Central Bank discount window and emergency loan facilities. It also requires private banks to fulfill one of two requirements: (1) opening four branches in rural areas and depositing the equivalent of ten percent of demand and short-term time deposits (30 days or less) in a state-owned bank; or (2) depositing the equivalent of 17 percent of demand and short-term time deposits (30 days or less) in a state-owned bank.

Many Costa Rican banks have subsidiary or affiliated banks registered offshore. These offshore entities are not permitted to capture deposits or lend money within Costa Rica, though they cater to Costa Rican clients. Recent reforms stipulate that any SUGEF-regulated holding company or financial group owning 25 percent or more of the equity of an offshore entity must include the offshore assets on its balance sheet. However, SUGEF does not have regulatory authority over the operations or individual accounts of the offshore entities.

There are 3 state owned banks: Banco Nacional de Costa Rica, Banco de Costa Rica, BanCredito (formerly Banco Credito Agricola de Cartago). BICSA, is a strange animal, as it is a private commercial bank jointly owned by the three state commercial banks and is chartered in the Bahamas. It has branches in Panama and Miami and a representative office in Costa Rica. Banco de Costa Rica is the most profitable and possibly best-run state commercial bank. Banco Nacional is the largest state commercial bank in both assets and number of location, although Banco de Costa Rica has nationwide coverage also. Banco Credito Agricola de Cartage (now known as BanCredito) is the smallest state bank.

These banks offer you the advantages of being safer for your money, since the Costa Rican government backs them. They also have better coverage; practically any town in Costa Rica has a Banco Nacional and/or a Banco de Costa Rica too. They have a wide range of services. The disadvantages are mostly the long lines that occur in busy locations and on peak days (Monday morning, Friday afternoon, 1, 15, & 30 of each month, etc.) Although they may have an English speaker on the staff in the larger branches, smaller branches are not as likely to.

The private commercial banks are relatively small. The largest in assets are Banco Interfin, Banco San José, Banco Banex and BanCrecen. Banco San José offers a good mix of fast service, numerous locations (including several mini-branches in supermarkets) and big variety of services. They are a part of Grupo San José, which owns Credomatic, one of the largest issuers of credit cards in Costa Rica. BanCrecen offers even more locations, but they are not a full service bank, although they do offer most of the important services in their 42 branches. Another private bank that many foreigners use is Scotiabank, this is a Canadian bank, so most of the staff speak excellent English.

The private banks offer you several advantages over the state banks, shorter lines, faster service, more English speaking staff and more agility in bringing new products and services into the market. The greatest disadvantage is the lack of deposit insurance. You will have to look closely at the corporation and its behavior when you use a private bank. That said, the government regulations do offer a measure of protection and your funds are safe under normal circumstances with any of the larger private banks.

Private banks have been undergoing a consolidation, with the total number of banks declining. Further consolidation is expected, as the size of the Costa Rican market is inadequate to sustain the number of banks that remain. A regional trend of consolidation is also evident, with recent purchases of Banco Banex by Panama's Banco del Istmo and Banco BFA by El Salvador's Banco Cuscatlán.

The Costa Rican colon is freely convertible into foreign currency and contracts may be negotiated in any currency. For 2 decades, the Central Bank established exchange rates through auctions and a well-publicized policy of daily mini-devaluations.  However in October of 2006, the Central Bank instituted a crawling band in order to slow inflation.  A 3% band allows the colon to "float", so that the bank doesn't need to intervene and the colon will begin to establish a market price. 

The Central Bank intends to gradually increase the per centage of the band, so that the exchange rate will be established by the market.  Their theory is that Costa Rica exports enough goods, services and agricultural products to eliminate the devaluation policy and therefore put the brakes on the 10% or 12% normal annual inflation rate. 

Now private banks and public banks may set their own exchange rates.  The Central Bank records inflows from exports but places no requirements on where those proceeds must be deposited. Dividends and transfers may be remitted freely.

The Central Bank is authorized in emergency situations, at its discretion, to introduce and regulate the use of short-term measures to alleviate economic imbalances or liquidity crises. Such measures include imposing surcharges on imports, limiting credit growth of financial entities, increasing the minimum legal reserve requirement (up to a ceiling of 25 percent), fixing the maximum intermediation rate (spread between lending and deposit rates), centralizing currency transactions in the Central Bank, and obligating the sale of currency derived from exports to authorized entities.

The Central Bank must, however, comply with limits on these extraordinary measures, which can only be imposed for one year or less, and which cannot be applied in a discriminatory manner among financial institutions or among sectors within the portfolio of each institution. The sum of the surcharge duties and other revenue generated by the extraordinary measures are to be used by the Central Bank to amortize the monetary stabilization account.

The Superintendency of Financial Markets (SUGEVAL) was created in 1998 to supervise and regulate the Costa Rican stock and bond markets, relieving SUGEF of this responsibility.