Venezuela escalated its intervention in the banking sector Friday, with government officials shutting down three small banks following the closure of four others earlier this week.

Finance Minister Ali Rodriguez attempted to calm depositors by saying the sector isn't facing a crisis, though problems are clearly evident among some of the country's smallest lenders.

The government will close Banivest CA, Banco Real CA, and Central Banco CA while it tries to rehabilitate them, Rodriguez said in a television appearance. It is the latest episode of banking sector intervention, which has already led to the nationalization of two banks and the liquidation of two others.

Banking regulators were closely monitoring the three banks, which were committing several violations, Rodriguez said, without giving details. The banks are controlled by Petro Torres, a businessman believed to have close ties to the administration of President Hugo Chavez.

Arne Chacon, a brother of Science and Technology Minister Jesse Chacon, is listed on Banco Real's Web site as president of the board of directors at Banco Real.

Neither Arne Chacon nor Torres could be located for comment.

Torres' banks together represent about 2% of deposits in the Venezuelan banking system, according to local research firm Softline Consultores. Total deposits at the three banks are 4.4 billion bolivars ($2 billion), according to Sudeban, the government's banking watchdog. Central Banco, by far the largest of the three, had 218,000 depositors, Chavez said, who added that 99% of deposits at the bank will be covered.

The banks owners offered to sell the banks to the government for VEF1 (16 U.S. cents), which helped prompt the intervention, Chavez said. He said that his administration was closely monitoring the activities of insurance firms and brokerages without giving more details.

The failure of the three banks coupled with that of the other four, which comprised about 6% of banking system deposits, confirmed fears that at least some smaller banks are in trouble, facing either regulatory or solvency issues, or both.

On Wednesday, Chavez had said the government had a group of banks on its "radar" and threatened to nationalize the entire banking system were a crisis to erupt. A number of depositors at smaller banks lined up to withdraw money Thursday, and overnight interbank lending rates spiked.

Rodriguez sought to calm nerves Friday. Pressure on the financial system had eased earlier in the day, with the bolivar currency rebounding a bit against the dollar in black market trading and bond prices recovering. "The action which we are undertaking on this occasion is to intervene behind closed doors to rehabilitate these banks," he said. Rodriguez reiterated that the country isn't facing "a crisis in the Venezuelan banking system."

The other four intervened banks belonged to Ricardo Fernandez, a billionaire who had lucrative government contracts. Fernandez, now jailed on various charges, has maintained his innocence through his lawyer.

In his Friday address, Chavez said, "the bankers of the intervened banks have committed fraud and they have bankrupted them." He added that the government is closely watching local brokerages and insurers, as well.

The country's three-largest banks, Banesco CA, Banco Mercantil CA and Banco Provincial, a unit of Spain's Banco Bilbao Vizcaya Argentaria SA (BBV, BBVA.MC), control just over a third of deposits and are well capitalized.

"The private banking sector is solid, with exceptions," Chavez said.

-By Darcy Crowe, Dow Jones Newswires; (58) 414 249 6821; darcy.crowe@dowjones.com
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