Lesson in Mexico's Monetary Policy: Part 3

The central bank, Banco de Mexico (Banxico), is the autonomous authority on monetary policy. The central bank has the primary objective of maintaining stability in the purchasing power of the peso. The value of the peso is determined by the market, under a floating exchange-rate regime in place since the December 1994 peso devaluation. However, the central bank does intervene in foreign-exchange markets to maintain currency stability. The Exchange Rate Commission sets policy; it is made up of six members -- three each from the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and the central bank, with the SHCP holding the deciding vote.

In January 2008 Banxico formally adopted an operating target for the overnight interbank rate (tasa de fondeo bancario) as a means to control peso liquidity in the market. The overnight interbank rate is set by the central bank's board of governors at its policy meetings. In 2009 Banxico engaged in a cycle of aggressive monetary easing to ease credit conditions and stimulate the slowing economy during the international financial crisis. 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. The Economist Intelligence Unit expects Banxico to maintain the interbank rate at this level throughout 2011.

Lesson in Mexico's Monetary Policy: Part 2

Mexico does not maintain foreign-exchange (forex) restrictions. Capital moves freely across the country's borders. Any forex policy changes require approval by the Exchange Rate Commission, composed of officials from the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and Banco de Mexico.

Money-laundering regulations -- enacted since 1996 -- have improved scrutiny of large transactions. Rules require financial institutions (banks, credit unions, brokerage houses, exchange houses and "nonbank" banks) to report "suspicious" transactions to authorities within 20 working days. On a quarterly basis, financial institutions must also submit reports on transactions of monetary instruments with a value equal to or exceeding US$10,000. Nonetheless, money-laundering still remains a problem in Mexico, owing to lax enforcement and a lack of resources and co-ordination among the government bodies responsible for investigating and prosecuting money-laundering cases.

Source: Economist Intelligence Unit

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.