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Thursday, June 9, 2011

Lesson in Financial Regulation in Mexico: Part 1

Financial regulation has been extensively reformed and improved in the past decade under the auspices of Banco de Mexico (Banxico -- the central bank), the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and the National Banking and Securities Commission (Comision Nacional Bancaria y de Valores -- CNBV). Some of the more important steps in creating a solid regulatory framework have included the creation of a limited deposit-insurance fund; the introduction of new capital-adequacy and provisioning requirements; accounting standards that are revised regularly to match US practices; and the implementation of stricter lending practice requirements aimed at better assessment of the reserves needed to cover losses.
In 2010 Banxico focused on aiding Mexico's recovery from the global financial crisis, while also preventing the domestic economy from slipping back into recession. At the height of the crisis, Banxico engaged in a cycle of monetary easing and took a series of policy measures to ease credit conditions, stimulate the economy and counter pressure on the peso. The interbank rate was cut by 375 basis points in the first half of 2009, from 8.25% in January to 4.5% in July, where it remained as of end-March 2011.
In July 2010 Banxico published new norms regulating charges and fees financial institutions are permitted to impose on their clients (Banco de Mexico Circular 22/2010). The new rules prohibit credit-granting institutions from charging fees for services such as the opening and closing of on-demand savings accounts, and the cancelling of credit cards. Fees for overdrafts are only permitted if and when the institution's client has agreed to such a charge through a separate signed consent form. The reforms became effective at the start of 2011.

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