## EXECUTIVE SUMMARY

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### Key Findings on the Financial Safety Net
- The Mexican financial authorities strengthened the financial safety net since the last FSAP (2016) but need to continue and accelerate enhancements.
- Recovery and resolution plans are in place for all commercial banks.
- Systemic banks are required to increase their loss absorbency complementing Basel III reforms.
- Authorities progressed preparations for using the bridge bank tool, signed cooperation agreements with all major home jurisdictions of the Mexican systemic banks, clarified emergency lending facilities including to banks in resolution, and improved the depositor payout process.
- Deficiencies remain in banks’ recovery plans and impediments to banks’ resolvability have become clearer as reforms are operationalized.
- Financial holding companies dominate the system and present build-in contagion risk that is not covered by the current resolution regime.

### Governance, Resources, and Deposit Insurance
- Reinforcing the resolution and deposit insurance agency’s (IPAB) governance, autonomy, and resources will enhance the credibility of the Mexican financial safety net.
  - Vacancies for independent members on IPAB’s board should be filled swiftly to ensure an appropriate balance between independent and ex officio members.
  - Strengthening safeguards for the autonomy of IPAB’s executive management would further enhance governance.
  - The FSAP supports ongoing evaluation of IPAB’s organizational structure and human resources needs and how best to attract and retain key staff as its operating budget and staff levels have significantly reduced in recent years.
  - IPAB’s backup funding should be operationalized, and public awareness of deposit insurance should be increased.
- The deposit insurance fund could cover resolution and payout of most smaller banks, despite legacy debt from the 1990s.
  - Authorities project the deposit insurance fund will reach 3.4 percent of insured deposits in 2027 and 5.1 percent in 2032.
  - Relieving IPAB from the 1990s’ legacy debt could expedite fund strengthening.

### Resolution Regime: Gaps and Recommended Enhancements
- The resolution regime includes a range of resolution options, including administrative liquidation, but is missing statutory bail-in powers.
  - Introduce bail-in powers with appropriate creditor protections (NCWO) and allow departure from pari passu treatment.
  - Amend the creditor hierarchy to expand the universe of TLAC-eligible instruments so shareholders and unsecured and uninsured creditors absorb losses prior to public funds.
- Triggering resolution:
  - Authorities should be able to trigger resolution when they deem a bank “nonviable” rather than waiting for certain quantitative thresholds to be met.
- Critical resolution tools:
  - Remove barriers to effective use of purchase and assumption (P&A) transactions and bridge banks.
  - A (partial) P&A transaction with a bridge bank—likely preceded by bail-in—should become the primary resolution strategy for systemic banks instead of open bank assistance (TOBA).
  - Allow more time to divest a bridge bank.
- Extend the resolution regime to financial holding companies (FHCs) to address contagion risk and the risk of concurrently applying diverging liquidation procedures for distressed group members.

### Banks’ Recovery Planning and Resolvability
- The recovery and early-intervention frameworks imply several successive attempts by a distressed bank to improve financial health may occur over a prolonged period.
  - Ensure the credibility and feasibility of banks’ financial contingency arrangements, reduce the execution time horizon, and be conservative in approving successive plans.
  - The resolution authority lacks power to remove impediments to banks’ resolvability (e.g., changes to business practices, structure, organization) and should continue to identify impediments and measures to mitigate them.
  - Shorten the resolution planning cycle for systemic and mid-size banks and clearly articulate required resolution capabilities to banks.
  - While awaiting statutory powers for IPAB to remove impediments, the banking supervisor (CNBV) should actively support removing resolvability impediments.

### Resolution Funding and Liquidity
- Funding sources and arrangements:
  - Banks’ loss-absorbing capacity requirements have been increased for systemic banks (complements Basel III), but their effectiveness requires accompanying legal and creditor-hierarchy changes.
  - Banxico clarified emergency lending facilities including lending to banks in resolution.
  - IPAB’s backup funding needs to be operationalized.
  - Government funding remains a potential backstop.
- TLAC requirements and calibration:
  - DSIBs are required to hold a TLAC amount that meets or exceeds the higher of 6.5 percent of risk-weighted assets or 3.75 percent of the Basel III leverage ratio denominator.
  - The TLAC requirements will be phased in over four years until end-2025—with 25% annual increments.
  - Without amending the statutory creditor hierarchy, only common equity and capital instruments (Additional Tier 1, Tier 2) are eligible to meet the TLAC requirements.
- Banxico facilities:
  - Banxico’s intraday and overnight standing facilities are available to all banks meeting requirements, including bridge banks and banks under COR or TOBA.
  - Additional Ordinary Liquidity Facility (FLAO) provides automatic overnight access against broader eligible collateral.
  - Emergency Liquidity Assistance (ELA) can be extended on a case-by-case basis for up to 90 days (renewable) and requires a credible liquidity restoration plan; ELA is provided at the discretion of Banxico’s Governing Board.
- IPAB funding and TOBA:
  - IPAB can establish, own, and operate a bridge bank and views TOBA as the primary resolution strategy for SIBs and systemic events given bridge bank operating costs.
  - For a bank not previously under COR, funding would be through a 15-day loan and an external valuation within 120 days if IPAB acquires shares.
  - For banks previously under COR, the process could take up to a year while implementing a capital restoration plan; IPAB has one year (extendable one year) to sell shares if it acquires them.
  - Recommendation: reconsider TOBA while TLAC is being phased and bail-in powers are introduced.

### Crisis Preparedness and Cooperation
- Mexico’s oversight structure offers institutional mechanisms for interagency cooperation (ex officio board members, two interagency committees for banking and financial sector stability).
  - Committees:
    - Comité de Estabilidad Bancaria (CEB) decides if a distressed bank’s failure can negatively affect financial system stability.
    - Consejo de Estabilidad del Sistema Financiero identifies and evaluates financial stability risks and recommends risk-mitigating policies.
  - This institutional framework should be supported with policy and operational documentation that is more accessible and practical than financial legislation.
- Operational preparedness:
  - Build on past crisis simulation exercises and recent bank failure experience to prepare for diverse failure scenarios, including fast-fail resolutions of systemic and midsize banks and concurrent failures.
  - Develop policy guidance, manuals, playbooks, and regular table-top and simulation exercises.
  - Focus preparedness where impediments to resolvability exist (e.g., separability), operational continuity in resolution is challenging (e.g., cybersecurity incident), or resolution methods (e.g., TOBA) keep distressed banks engaging with markets and the public.
- Deposit insurer operational experience:
  - IPAB tested deposit payout and communications capabilities during two bank failures in 2020–21.
    - Outcome: Over 95 percent of insured deposits were paid out three months after license revocation in both cases.
    - First month payouts: 84 percent in the case of Accendo; 70 percent in the case of Famsa.
    - The total insured amount is around 143,000 USD for each depositor at each member bank.
  - IADI Core Principle 15 calls for reimbursement of most insured depositors within seven working days.
  - IPAB’s web-based payout system (e.g., no-card withdrawals) and communications management system were instrumental.
  - Small-depositor challenge: extra efforts required for payouts to depositors with less than 50 USD.

### Select Recommendations (from Table 1) — Timing and Priority
- 1. Continue to enhance authorities’ operational preparedness for diverse failure scenarios. (all; ¶40) — C; H
- 2. Continue reinforcing IPAB’s governance and autonomy and fill vacancies for independent Board members; enhance autonomy through statutory amendments. (SHCP, IPAB; ¶30, ¶31) — I/M; H
- 3. Further strengthen mechanisms to ensure credibility and feasibility of banks’ recovery and capital conservation and restoration plans. (CNBV; ¶13, ¶14) — C; H
- 4. Eliminate deficiencies in recovery plans and enhance consistency of recovery plan reviews and feedback. (CNBV; ¶20, ¶21) — C; H
- 5. Clearly articulate and discuss with banks the capabilities they must have to support orderly resolution as planned by IPAB. (IPAB; ¶23) — I; H
- 6. Shorten the resolution planning cycle for DSIBs and midsize banks, eliminate impediments to resolvability, and, while awaiting IPAB statutory powers, establish an effective interagency mechanism to remove these impediments. (SHCP, CNBV, IPAB; ¶22, ¶23) — C/M; H
- 7. Eliminate barriers to effective use of P&A and bridge bank tools and continue preparing for their application; allow more time to divest a bridge bank. (SHCP, IPAB; ¶16, ¶17) — M; H
- 8. Complete reviewing IPAB’s organizational structure and resource and skillset needs to prepare and manage bank resolutions. (IPAB; ¶32, ¶33) — C; M
- 9. Introduce statutory bail-in powers with NCWO safeguard; allow departure from pari passu; amend creditor hierarchy to expand TLAC-eligible instruments. (SHCP; ¶15, ¶25) — M; M
- 10. Adopt a recovery and resolution regime for FHCs. (SHCP; ¶19) — M; M
- 11. Continue growing the deposit insurance fund; relieve IPAB from 1990s legacy debt; operationalize IPAB’s backup funding sources. (IPAB, SHCP, Banxico; ¶35–37) — M; M
- 12. Increase public awareness of deposit insurance to a large majority of depositors and unbanked adults. (all; ¶38) — M; M

*Source — EXECUTIVE SUMMARY, 1mexea2022004 (IMF FSAP technical note), based on material as of July 1, 2022; data cut-off end-2021.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 5

### EXECUTIVE SUMMARY

### Key Findings on the Financial Safety Net
- The Mexican financial authorities strengthened the financial safety net since the last FSAP (2016) but need to continue and accelerate enhancements.
- Recovery and resolution plans are in place for all commercial banks.
- Systemic banks are required to increase their loss absorbency complementing Basel III reforms.
- Authorities progressed preparations for using the bridge bank tool, signed cooperation agreements with all major home jurisdictions of the Mexican systemic banks, clarified emergency lending facilities including to banks in resolution, and improved the depositor payout process.
- Deficiencies remain in banks’ recovery plans and impediments to banks’ resolvability have become clearer as reforms are operationalized.
- Financial holding companies dominate the system and present build-in contagion risk that is not covered by the current resolution regime.

### Governance, Resources, and Deposit Insurance
- Reinforcing the resolution and deposit insurance agency’s (IPAB) governance, autonomy, and resources will enhance the credibility of the Mexican financial safety net.
  - Vacancies for independent members on IPAB’s board should be filled swiftly to ensure an appropriate balance between independent and ex officio members.
  - Strengthening safeguards for the autonomy of IPAB’s executive management would further enhance governance.
  - The FSAP supports ongoing evaluation of IPAB’s organizational structure and human resources needs and how best to attract and retain key staff as its operating budget and staff levels have significantly reduced in recent years.
  - IPAB’s backup funding should be operationalized, and public awareness of deposit insurance should be increased.
- The deposit insurance fund could cover resolution and payout of most smaller banks, despite legacy debt from the 1990s.
  - Authorities project the deposit insurance fund will reach 3.4 percent of insured deposits in 2027 and 5.1 percent in 2032.
  - Relieving IPAB from the 1990s’ legacy debt could expedite fund strengthening.

### Resolution Regime: Gaps and Recommended Enhancements
- The resolution regime includes a range of resolution options, including administrative liquidation, but is missing statutory bail-in powers.
  - Introduce bail-in powers with appropriate creditor protections (NCWO) and allow departure from pari passu treatment.
  - Amend the creditor hierarchy to expand the universe of TLAC-eligible instruments so shareholders and unsecured and uninsured creditors absorb losses prior to public funds.
- Triggering resolution:
  - Authorities should be able to trigger resolution when they deem a bank “nonviable” rather than waiting for certain quantitative thresholds to be met.
- Critical resolution tools:
  - Remove barriers to effective use of purchase and assumption (P&A) transactions and bridge banks.
  - A (partial) P&A transaction with a bridge bank—likely preceded by bail-in—should become the primary resolution strategy for systemic banks instead of open bank assistance (TOBA).
  - Allow more time to divest a bridge bank.
- Extend the resolution regime to financial holding companies (FHCs) to address contagion risk and the risk of concurrently applying diverging liquidation procedures for distressed group members.

### Banks’ Recovery Planning and Resolvability
- The recovery and early-intervention frameworks imply several successive attempts by a distressed bank to improve financial health may occur over a prolonged period.
  - Ensure the credibility and feasibility of banks’ financial contingency arrangements, reduce the execution time horizon, and be conservative in approving successive plans.
  - The resolution authority lacks power to remove impediments to banks’ resolvability (e.g., changes to business practices, structure, organization) and should continue to identify impediments and measures to mitigate them.
  - Shorten the resolution planning cycle for systemic and mid-size banks and clearly articulate required resolution capabilities to banks.
  - While awaiting statutory powers for IPAB to remove impediments, the banking supervisor (CNBV) should actively support removing resolvability impediments.

### Resolution Funding and Liquidity
- Funding sources and arrangements:
  - Banks’ loss-absorbing capacity requirements have been increased for systemic banks (complements Basel III), but their effectiveness requires accompanying legal and creditor-hierarchy changes (see bail-in and TLAC eligibility above).
  - Banxico clarified emergency lending facilities including lending to banks in resolution.
  - IPAB’s backup funding needs to be operationalized.
  - Government funding remains a potential backstop.

### Crisis Preparedness and Cooperation
- Mexico’s oversight structure offers institutional mechanisms for interagency cooperation (ex officio board members, two interagency committees for banking and financial sector stability).
  - This institutional framework should be supported with policy and operational documentation that is more accessible and practical than financial legislation.
- Operational preparedness:
  - Build on past crisis simulation exercises and recent bank failure experience to prepare for diverse failure scenarios, including fast-fail resolutions of systemic and midsize banks and concurrent failures.
  - Develop policy guidance, manuals, playbooks, and regular table-top and simulation exercises.
  - Focus preparedness where impediments to resolvability exist (e.g., separability), operational continuity in resolution is challenging (e.g., cybersecurity incident), or resolution methods (e.g., temporary open bank assistance) keep distressed banks engaging with markets and the public.

### Select Recommendations (from Table 1) — Timing and Priority
- 1. Continue to enhance authorities’ operational preparedness for diverse failure scenarios. (all; ¶40) — C; H
- 2. Continue reinforcing IPAB’s governance and autonomy and fill vacancies for independent Board members; enhance autonomy through statutory amendments. (SHCP, IPAB; ¶30, ¶31) — I/M; H
- 3. Further strengthen mechanisms to ensure credibility and feasibility of banks’ recovery and capital conservation and restoration plans. (CNBV; ¶13, ¶14) — C; H
- 4. Eliminate deficiencies in recovery plans and enhance consistency of recovery plan reviews and feedback. (CNBV; ¶20, ¶21) — C; H
- 5. Clearly articulate and discuss with banks the capabilities they must have to support orderly resolution as planned by IPAB. (IPAB; ¶23) — I; H
- 6. Shorten the resolution planning cycle for DSIBs and midsize banks, eliminate impediments to resolvability, and, while awaiting IPAB statutory powers, establish an effective interagency mechanism to remove these impediments. (SHCP, CNBV, IPAB; ¶22, ¶23) — C/M; H
- 7. Eliminate barriers to effective use of P&A and bridge bank tools and continue preparing for their application; allow more time to divest a bridge bank. (SHCP, IPAB; ¶16, ¶17) — M; H
- 8. Complete reviewing IPAB’s organizational structure and resource and skillset needs to prepare and manage bank resolutions. (IPAB; ¶32, ¶33) — C; M
- 9. Introduce statutory bail-in powers with NCWO safeguard; allow departure from pari passu; amend creditor hierarchy to expand TLAC-eligible instruments. (SHCP; ¶15, ¶25) — M; M
- 10. Adopt a recovery and resolution regime for FHCs. (SHCP; ¶19) — M; M
- 11. Continue growing the deposit insurance fund; relieve IPAB from 1990s legacy debt; operationalize IPAB’s backup funding sources. (IPAB, SHCP, Banxico; ¶35–37) — M; M
- 12. Increase public awareness of deposit insurance to a large majority of depositors and unbanked adults. (all; ¶38) — M; M

*Timing codes: C: continuous; I: immediate (<1 year); NT: short term (1–2 years); MT: medium term (3–5 years).  
*Priority codes: H: high; M: medium; L: low.

_Italic: Source — EXECUTIVE SUMMARY, 1mexea2022004 (IMF FSAP technical note), based on material as of July 1, 2022; data cut-off end-2021._

### 6.      Two interagency committees provide a platform for coordination and cooperation

### 6.      Two interagency committees provide a platform for coordination and cooperation

### Interagency coordination framework
- Two interagency committees provide coordination and cooperation among the MFAs and other authorities:
  - Comité de Estabilidad Bancaria (Banking Stability Committee; CEB):
    - Comprises appointed members (principals and deputies) from all MFAs.
    - Decides if a distressed bank’s failure can negatively affect financial system stability.
  - Consejo de Estabilidad del Sistema Financiero (Financial Stability Council):
    - Comprises members from the MFAs and the insurance and pension fund supervisory agencies.
    - Identifies and evaluates financial stability risks, and recommends risk-mitigating policies.

### Developments since the 2016 FSAP — implementation status
- Of the 22 recommendations from the 2016 FSAP:
  - Implemented: 12
  - Partially implemented: 4
- Specific implemented or progressed measures:
  - Recovery and resolution plans are in place for all commercial banks.
  - Authorities progressed preparations for using the bridge bank tool.
  - Cooperation agreements signed with all major home jurisdictions of the Mexican DSIBs.
  - Introduced total loss-absorbing capacity (TLAC) requirements for DSIBs.
  - Clarified Banxico’s protocols for the Additional Ordinary Liquidity Facility (Facilidad de Liquidez Adicional Ordinaria; FLAO) and Loans of Last Resort (Créditos de Liquidez de Última Instancia).
  - Improved depositor payout process.
- Outstanding fundamental reforms (examples):
  - IPAB’s governance and finances.
  - Resolution regime’s remit.
  - Impediments to the use of critical resolution tools and to banks’ resolvability.

### Deposit insurer operational experience
- IPAB tested deposit payout and communications capabilities during two bank failures in 2020–21 (reasons unrelated to COVID-19).
  - Outcome: Over 95 percent of insured deposits were paid out three months after license revocation in both cases.
  - First month payouts: 84 percent in the case of Accendo; 70 percent in the case of Famsa.
  - Note: The total insured amount is around 143,000 USD for each depositor at each member bank.
- International best practice cited: IADI’s Core Principles for Effective Deposit Insurance Systems — Core Principle 15 (essential criteria 1) calls for reimbursement of most insured depositors within seven working days.
- Operational context:
  - Payouts were achieved while most of the country was in lockdown and banks operated at very low operational capacity.
  - IPAB’s newly developed web-based payout system (e.g., no-card withdrawals) and communications management system were instrumental.
- Small-depositor challenge:
  - Liquidators had to make extra efforts to ensure payouts to the smallest depositors with less than 50 USD who were reluctant to claim their deposits.

### Enhancements to bank recovery and resolution framework
- CNBV introduced a TLAC requirement for DSIBs (phased in from 2022 through 2025).
- IPAB actions:
  - Started updating the earliest resolution plans.
  - Updated the resolution planning guidelines in December 2021.
- MFAs updated recovery planning requirements in September 2022 (effective January 2023) based on experience reviewing recovery plans since 2016.
- Banxico emergency measures during COVID-19:
  - Temporarily amended the FLAO protocol during 2020–21 with expanded eligible securities (with lower credit ratings) and expanded eligible counterparts (including state-owned development banks).
  - These modifications were withdrawn without disruptions.
  - Development banks had access to the FLAO during April 2020–February 2021; the expanded eligible collateral regime was in place during April 2020–September 2021.

### IMF engagement and vulnerabilities
- Mexico’s precautionary Flexible Credit Line with the IMF was renewed.
- November 2021 Article IV Staff Report observations:
  - Overall strength of the banking sector notwithstanding, some smaller banks remained vulnerable.
  - The banking system is concentrated; lending is subject to concentration risk.
  - Most of Banxico’s COVID-related liquidity and credit support facilities had expired.
- IMF staff view: Progress on outstanding 2016 FSAP recommendations would help boost resilience, including:
  - Adequate access to funding for deposit insurance.
  - An enhanced resolution regime for FHCs.
  - Strengthened autonomy and governance of IPAB.
  - Continued use of flexibility within the framework to cope with challenges.

### When banks are failing — supervisory forbearance
- Conditional Operating Regime (COR) under prompt corrective action (PCA) framework:
  - Banks with capital adequacy ratios (CARs) below regulatory requirements can use COR.
  - COR can be applied for when CAR is between 8 and 4.5 percent, subject to two conditions:
    - The bank must transfer at least 75 percent of its shares to an irrevocable trust.
    - The bank must submit a capital restoration plan to meet the 10.5 percent CAR requirement within 270 days.
  - Under COR:
    - Management and board retain powers.
    - CNBV may impose restrictions on dividend payments, stock buybacks, and bonuses, and prescribe write-down or conversion into equity of subordinated convertible debt instruments if contractually allowed.
  - Resolution is automatically triggered when:
    - A bank with CAR below eight percent does not apply for the COR.
    - CNBV does not approve its COR application.
    - A bank fails to execute its capital restoration plan.
    - CAR falls below 4.5 percent.
- Timeline considerations:
  - Banks have up to an additional 270 days to implement the capital restoration plan—with possibly a 90-day extension.
  - Time for submission and review of capital restoration plan includes: 7 days for banks to submit and 60 days for CNBV to review and approve.
- Supervisory recommendations:
  - CNBV should assume a conservative approach in assessing COR applications, particularly where earlier recovery or capital restoration plans have failed.
  - Set clear and strict intermediate targets and deadlines for implementation of recovery, capital conservation, and capital restoration plans.
  - Establish policies and procedures to assess credibility and feasibility of plans and to set appropriate targets and deadlines.
  - CNBV, in consultation with IPAB and with information from banks, should assess whether proposed measures could negatively impact a bank’s resolvability.
  - MFAs should ideally have more statutory discretion to determine nonviability and trigger resolution earlier.

### Bank resolution — tools, constraints, and recommendations
- Mexican resolution regime (except for statutory bail-in powers) includes:
  - Administrative and judicial liquidation.
  - Purchase and assumption (P&A) transactions with a private-sector purchaser or a bridge bank.
  - Reimbursement of insured deposits.
- For non-systemic banks in resolution, IPAB must choose the resolution method that is least costly for IPAB.
- For systemic banks (as determined by the CEB at the time of failure), the preferred option is Temporary Open Bank Assistance (TOBA).
  - Under TOBA, shareholders could incur some losses, but creditors are not affected unless contractual terms allow conversion to equity or write-down.
- Statutory bail-in:
  - Introducing statutory bail-in powers requires legislative change.
  - Complementary changes needed: statutory creditor hierarchy to allow bail-inable subordinated debt, power to depart from pari passu treatment (KA5.1), and a no creditor worse off (NCWO) than in liquidation safeguard (KA5.2)—this safeguard is missing.
  - Benefits: would facilitate shareholders and both unsecured and uninsured senior creditors absorbing losses prior to IPAB support.
- Bridge bank use and constraints:
  - Bridge bank advantages: allows more time to market a sale (P&A); particularly needed for SIBs and systemic events.
  - Current arrangement:
    - IPAB can establish, own, and operate a bridge bank without a banking license or capital requirements.
    - A bridge bank can operate for two terms of six months (total one year) during which IPAB must aim to divest.
    - SHCP would own one share in a bridge bank to comply with corporate law requiring at least two shareholders.
  - Practical limitations:
    - One year may be insufficient to divest; IPAB’s leverage could be undermined as deadline approaches.
    - IPAB reports that in resolution planning a bridge bank did not meet the least-cost requirement due to high operating costs.
    - Note: bridge banks are typically used for SIBs and in systemic events, where the least-cost rule does not apply.
  - Recommendation: extend potential operation period to a total of two years to provide flexibility; revisit modalities for operations and governance, including incentive structures for bridge bank managers, to reduce operating costs.
- Purchase and assumption (P&A) constraints:
  - Bank secrecy rules prevent IPAB from sharing failing banks’ information with prospective purchasers before license revocation, hampering due diligence and pre-positioning of P&A.
  - Consequence: P&A cannot be prepared in advance, or sale only possible at steep discount, likely rendering it too costly under least-cost rule.
  - Practical mitigations:
    - Use of IPAB-owned bridge bank as intermediary prior to sale to private purchaser.
    - Use conservatorship to prepare a P&A rapidly (conservator substitutes management/board).
    - Incentivize failing bank shareholders to market the bank (prepare data room).
    - Maintain and update a list of potential buyers before contingencies materialize.
  - Structural solution sought: statutory exception to bank secrecy for resolution purposes.

### Bank insolvency process
- Balance sheet insolvent banks are liquidated through a court-based insolvency procedure.
- IPAB’s role:
  - Acts as the ‘judicial liquidator,’ directly or through a third party of its choice and under its oversight.
- Courts’ role:
  - Confirm a bank’s insolvency within 24 hours after IPAB’s application for insolvency.
  - Determine creditors’ claims and ranking (on judicial liquidator’s advice based on statutory creditor hierarchy).
  - Resolve legal challenges and declare closure of the judicial liquidation process at judicial liquidator’s request.
- Legal protections:
  - During insolvency, a failed bank’s assets are shielded from third-party legal actions.
  - Legal challenges do not suspend the liquidation process.

### Financial holding companies (FHCs) — risks and recommended reform
- FHCs are a distinct feature of the Mexican financial system.
- Observed risks:
  - FHCs can be a source of weakness, adversely affecting the bank’s condition and safety (referencing Basel Core Principles Section 01.18).
  - Mexican FHCs are liable for group entities’ losses through ‘liabilities assumption agreements.’
  - If an FHC cannot meet obligations, it must use all assets, including selling holdings in group entities on a prorated basis — creating inherent contagion.
  - FHCs are subject to corporate bankruptcy regime; group entities would be resolved under distinct regimes, risking diverging procedures across group members.
- Recommendation:
  - Adopt a recovery and resolution regime for FHCs.
  - This would align the Mexican regime with FSB Key Attributes (specifically KA1.1) which apply to both operating and non-operating holding companies.
  - MFAs should be able to require establishment of FHCs in mixed-activity groups to improve resolvability (KA Assessment Methodology for the Banking Sector, Explanatory Note EN10(b)).

*Source: IMF staff summary of chapter "6. Two interagency committees provide a platform for coordination and cooperation" from the provided document.*

### 20.      While banks’ recovery planning has progressed well, continued efforts to reduce

### 1mexea2022004 - 20.      While banks’ recovery planning has progressed well, continued efforts to reduce

### Recovery planning progress and remaining deficiencies
- Recovery planning in Mexico commenced in March 2016.
- Development status:
  - DSIBs have progressed in developing recovery plans and integrating the recovery (planning) process in their business-as-usual risk management framework.
  - Some midsize and smaller banks continue to find recovery planning challenging.
- Main deficiencies identified by the MFAs:
  - Identification of critical functions.
  - Identification of sources and uses of financing.
  - Recovery estimations (e.g., the measures’ costs, mutual incompatibilities, and impact on operations, liquidity, and solvency).
- Regulatory update:
  - In September 2022, the MFAs updated the recovery plan requirements (effective in January 2023) enshrined in Annex 69 of the Banking Single Rulebook (Circular Única de Bancos) to offer more granular guidance, particularly on the above issues and banks’ communication efforts accompanying recovery measures.
- Importance of addressing deficiencies:
  - Enhance plans’ credibility and feasibility.
  - Increase insights into potentially mutually negatively reinforcing recovery actions when several banks are concurrently distressed.
  - Provide valuable input for resolution planning.
  - Ensure recovery processes and actions do not impede banks’ resolvability.

### Consistency of plan reviews and MFA coordination
- Review cycles and process:
  - Building on the first three cycles with recovery plan reviews, the MFAs discussed codifying their experience and increasing convergence of views about banks’ recovery planning approach.
  - The update of Annex 69 was concluded in September 2022 after a delay due to the Covid-19 outbreak.
  - The granularity of the updated Annex 69 will benefit both banks and MFAs, including with a supporting scoring framework and a memorandum of understanding (MOU) to make interagency review consultations more efficient.
- Current review structure:
  - Review process is led by CNBV where review responsibility is decentralized at the level of the supervisory teams and centralized for signing off on the plans.
  - The sign-off concludes the review process that includes consultations with the other MFAs where dedicated teams review all recovery plans.
- Recommended governance improvements:
  - CNBV is ultimately responsible for the review of recovery plans, the overall consistency of the reviews, and the effectiveness of feedback to banks.
  - A centralized team at CNBV should:
    - Manage the (interagency) review and scoring process.
    - Act as a sounding board for supervisory teams undertaking reviews and officials signing off on reviews and feedback.

### Resolution Planning by IPAB
- Progress and coverage:
  - IPAB has a resolution plan for each commercial bank.
  - IPAB has updated eight plans, including two for DSIBs—the plans for the other four DSIBs are expected to be updated by end-2022.
- Revised guidelines and planning cycles:
  - In December 2021, the guidelines for resolution planning were revised.
  - Under the new guidelines:
    - DSIBs’ resolution plans (and other banks at IPAB discretion) are expected to be updated every 3 years.
    - Midsize banks every 2–4 years.
    - Small banks every 4–5 years.
  - Recommendation: shorten planning cycles specifically for DSIBs and the largest midsize banks, considering the FSB KA’s requirement to undertake resolution planning annually.
- Information exchange:
  - Planning should be supported by clear arrangements between IPAB and CNBV to exchange pertinent information that could trigger earlier updates of resolution plans (e.g., change of business model or significant financial deterioration).
- Removing impediments to resolvability:
  - New resolution planning guidelines require IPAB to identify specific impediments to a bank’s resolvability and propose measures to remove these impediments.
  - Constraint: IPAB does not have statutory powers to instruct a bank to make changes that could improve its resolvability.
  - Recommendations:
    - IPAB should clearly articulate and regularly discuss with banks the capabilities expected to support orderly resolution (e.g., operational continuity, restructuring, communications).
    - While awaiting statutory powers for IPAB, CNBV should actively use its supervisory powers to support IPAB’s resolution planning strategies.
- Cross-border aspects:
  - Five of the six DSIBs are subsidiaries of foreign SIBs; their resolution planning is partly undertaken at the international level.
  - Three Mexican DSIBs are owned by a foreign SIB with a multiple point of entry resolution strategy (BBVA, Santander, HSBC).
  - IPAB will manage resolution directly at the subsidiary level for those groups with subsidiary-based corporate structures; other subsidiaries owned by foreign SIBs are planned to be resolved at parent level by the home resolution authority following a single point of entry strategy.
  - High degree of cross-border cooperation exists between resolution authorities:
    - For GSIBs in crisis management groups (CMGs), IPAB, Banxico, and CNBV are members of three CMGs (Citigroup, HSBC, Santander) and an observer in a resolution college (BBVA).
  - Legal gaps:
    - Mexico is signatory to several treaties on recognition and enforcement of foreign judgements, but these treaties do not apply to bankruptcy, insolvency, liquidation, or other similar proceedings, including bank resolution.
    - Mexican legislation does not provide for a framework to recognize foreign resolution decisions.
  - Recommendation: MFAs should evaluate how best to complement existing supportive measures and contractual approaches with a specific administrative and/or judicial recognition process—with appropriate exceptions—to give prompt, transparent, and predictable effect to foreign bank resolution decisions, as prescribed by KA7.5 and elaborated in the FSB Principles for Cross-border Effectiveness of Resolution Actions.

### Resolution funding — Banks’ loss-absorbing capacity (TLAC)
- TLAC introduction and calibration:
  - Since 2022, Mexican DSIBs are subject to TLAC requirements—in addition to existing Basel III requirements.
  - Under the new rules, DSIBs are required to hold a TLAC amount that meets or exceeds the higher of 6.5 percent of risk-weighted assets or 3.75 percent of the Basel III leverage ratio denominator.
  - The TLAC requirements will be phased in over four years until end-2025—with 25% annual increments.
  - Many DSIBs, considering their high capitalization, are not expected to need the full four years to reach the required levels.
- Eligibility and statutory constraints:
  - The TLAC requirements were introduced as an amendment in CNBV’s capital regulations.
  - Without amending the statutory creditor hierarchy, only common equity and capital instruments (Additional Tier 1, Tier 2) are eligible to meet the TLAC requirements.

### Resolution funding — Banxico facilities and ELA
- Banxico facilities available to banks in resolution:
  - Banxico’s intraday and overnight standing facilities are available to all banks provided they meet the requirements, including bridge banks and banks under COR or TOBA.
  - Additional Ordinary Liquidity Facility (Facilidad de Liquidez Adicional Ordinaria; FLAO):
    - Solvent banks facing short-term liquidity needs can ‘automatically’ access this overnight facility against eligible collateral that is broader than for the standing facilities but still of high quality (e.g., securities denominated in foreign currency issued by public sector entities).
  - Emergency Liquidity Assistance (Créditos de Liquidez de Última Instancia; ELA):
    - Extended on a case-by-case basis for up to 90 days (that can be renewed for additional 90-day periods) to banks facing extreme liquidity stress and that have insufficient collateral for the standing facilities.
    - Banks must submit a credible liquidity restoration plan with the ELA request.
    - ELA is provided at the discretion of Banxico’s Governing Board, which may require that the bank’s shares are pledged to supplement other collateral.
    - Eligibility conditions for ELA requests:
      - Banks must have a CAR over 8 percent, be under the COR, or the CEB deems the bank systemic for resolution purposes.

### Resolution funding — IPAB funding and TOBA practice
- IPAB funding mechanisms:
  - IPAB funding in resolution would typically be extended through a bridge bank or under TOBA.
  - IPAB can establish, own, and operate a bridge bank, which it will need to capitalize.
  - Considering the operating costs of a bridge bank, IPAB views TOBA as the primary resolution strategy for SIBs and in systemic events.
- Process distinctions and timelines:
  - For a bank that had previously not been under COR:
    - Funding would be through a 15-day loan after which either the loan is repaid or, if not repaid, IPAB would acquire the bank’s shares against the adjusted book value as determined by an external valuation (within 120 days after being commissioned by IPAB).
  - For banks that had previously been under COR:
    - The process could take up to a year while the bank is implementing a capital restoration plan; if unsuccessful, IPAB can provide financial support through subscription of shares and recapitalize the bank based on an external valuation.
  - If IPAB acquires a bank’s shares:
    - It has one year (that can be extended for one year) to sell the shares. If a sale is not possible within this period, the bank will most likely be liquidated.
- Concerns and recommendation:
  - TOBA implies that the CEB deems that most—if not all—of the failing bank’s liabilities need protecting, except for TLAC and capital instruments, to avoid triggering or exacerbating liquidity pressures.
  - This approach goes against the raison d'être of the international reform agenda and would expose IPAB to significant uncertainty and risk, potentially eroding depositor confidence.
  - Recommendation: While TLAC is being phased and bail-in powers are introduced, the MFAs should reconsider TOBA.

### Resolution funding — Government funding and ownership considerations
- Direct government funding:
  - Direct funding in resolution by the Mexican government should only be considered after introducing statutory bail-in powers.
  - In a large-scale financial crisis, government funds may be needed to recapitalize SIBs where private capital cannot be mobilized.
  - Using public funds for bank recapitalization should be a last resort, used only when financial stability is severely threatened, and subject to strict conditions, including losses first being recognized.
  - The Mexican resolution regime does not envisage such temporary government support.
- Indirect government support and ownership:
  - Government funding would only be provided indirectly by supporting IPAB when its funds are insufficient.
  - Ideally, ownership interests in banks following full or partial recapitalization should be SHCP’s responsibility (or a specialized agency).
  - Rationale: Deposit insurers have a conflict of interest in owning an entity whose depositors they are insuring; ownership by deposit insurers raises competitiveness and fairness concerns for other banks and could result in losses undermining deposit insurers’ balance sheets and credibility.
- Legislative and procedural note:
  - Using regular budgetary processes, SHCP can request Congress for funding for financial stability measures.

### Deposit Insurance — IPAB governance and staffing
- Governing Board composition and powers:
  - The IPAB Governing Board comprises three ex officio public officials—including the Minister of Finance as chair—and four independent members.
  - IPAB is a decentralized parastatal entity; it is part of the federal public sector—under SHCP’s coordination—but with its own legal personality and finances separate from SHCP, albeit subject to federal rules for public financing and remunerations, and subject to continuous federal audits.
  - As required by the Federal Parastatal Entities Law, the Minister of Finance chairs the Governing Board; the IPAB Law further provides that the Banxico Governor and the CNBV President sit on the Board.
  - Four independent members hold a majority on the Governing Board; they are appointed by the Republic’s President with the Chamber of Senators’ approval.
  - Independent members:
    - Serve four-years terms.
    - Are appointed on a staggered schedule—one each year—with replacements serving the remainder of a term to maintain staggered continuity.
  - Governing Board powers include statutory authority to take key decisions on IPAB’s functioning, including budgetary decisions, appointment and dismissal of the Executive Secretary and Deputy Executive Secretaries, and firm-specific resolution decisions.
- Current priority and recommendations:
  - Filling the vacancies of independent members on the IPAB Board should be given the highest priority.
  - For some time, three of the four independent positions have been vacant.
  - The FSAP notes IPAB’s parastatal status makes structural governance strengthening challenging (e.g., having the Executive Secretary or an independent member chair the Board, and subject to less intrusive federal audits).
  - Recommendation: filling these three vacancies with new independent board members should be given the highest priority.

*Source: IMF staff summary of the content unit.*

### 31.      The safeguards for the autonomy of IPAB’s executives should be strengthened. The

### The safeguards for the autonomy of IPAB’s executives should be strengthened. The

### Executive autonomy and governance findings
- The Executive Secretary is IPAB’s chief executive with responsibilities for day-to-day management, preparing and executing the Governing Board’s decisions, preparing IPAB’s budget, developing its organization, appointing and dismissing the Deputy Executive Secretaries, and appointing and dismissing IPAB’s staff.
- The Executive Secretary is appointed by the Board—for the last three Secretaries from among IPAB’s staff—for an undefined term; they serve an average of three years.
- In practice, the IPAB Executive Secretary has been replaced when new governments have taken office.
- Contrary to the four independent board members who enjoy strong protections against dismissals under several federal laws:
  - The Executive Secretary can be removed from office on a “reasonable proposal” from any board member.
  - There are no statutory grounds at all for the dismissal of the Deputy Executive Secretaries.
- Board members and executives have recourse to courts to challenge their dismissal, and courts could award monetary compensation.
- The Parastatal Entities Law does not appear to prevent policies or statutory requirements under the IPAB Law to:
  - set a fixed term of appointment for the Executive Secretary;
  - specify more objective grounds for dismissal of the Executive Secretary and the Deputy Executive Secretaries, possibly emulating the grounds that apply to the four independent members of the IPAB Board or the members of the Banxico Board.
- Policy recommendation:
  - The authorities should enhance IPAB executives’ autonomy by setting fixed terms and more objective dismissal grounds along the lines noted above.

### Staffing levels, skillset, and organizational capacity
- Recent federal policy changes significantly reduced IPAB’s operating budget and staffing resources:
  - Operating budget reduced by 45 percent—now using about one percent of collected fees.
  - Staffing fell by 10 percent.
- Staffing levels have been stable over the last decade after being halved relative to the previous decade.
- IPAB experienced major staff turnover in 2020 and 2021:
  - In some critical units turnover of 20–33 percent (e.g., resolution planning and execution, and dispute prevention and litigation).
  - Finance and Treasury Unit experienced a 75 percent turnover.
- Emerging and continuing challenges:
  - Increasing financial system complexity and financial innovation change banks’ business structures and may require new skillsets.
  - Cybersecurity challenges may hamper operational continuity in resolution.
  - Need to build new resource skillsets in competitive labor markets and to reduce impediments to resolvability and undertake contingency preparations.
- Existing mitigants:
  - In Mid-2000, IPAB created a special reserve fund for commissioning external resources to support staff in times of increased work demands.
  - IPAB Law allows for secondments from other MFAs at IPAB in times of need, but no arrangements are in place to make this possibility easily accessible.
- Policy recommendations:
  - Continue the ongoing evaluation of IPAB’s organizational structure and human resources needs.
  - Develop and maintain experience and expertise among career staff for business-as-usual work and to ensure appropriate management and quality control of external resources.
  - Improve arrangements for secondments and access to external support.

### Legal protection for officials and litigation preparedness
- IPAB’s current and former officials, staff, and agents enjoy legal protection for (in)actions if they acted in good faith.
- Protections are enshrined in legislation, internal policies and procedures, and complemented by internal funds and external insurance for liabilities and legal aid.
- Protected persons can choose their own legal representation, enjoy legal and financial protection throughout appeals processes, and are protected against repayments of costs made by IPAB unless they have acted in bad faith.
- Given the intrusive nature of resolution measures and higher litigiousness from stakeholders, IPAB should regularly assess whether levels of internal funds and external insurance for liabilities and legal representation are adequate.

### IPAB finances: funding sources, constraints, and projections
- IPAB’s income sources:
  - Fees paid by banks (ordinary and extraordinary fees).
  - Returns on investments made with funds under IPAB’s management.
- Fee parameters set by IPAB’s Governing Board within statutory limits:
  - Ordinary fees cannot be lower than 0.4 percent of a bank’s liabilities.
  - Extraordinary fees cannot exceed 0.3 percent.
  - Together, both fees cannot exceed 0.8 percent.
  - IPAB has always kept the ordinary fee level at 0.4 percent.
- Borrowing powers and backstops:
  - IPAB can borrow from the market up to an amount equal to six percent of commercial banks’ total liabilities (amounting to 28,478 million USD at end-2021).
  - IPAB can also borrow from Banxico or development banks.
  - IPAB can request—through SHCP—extraordinary funding from Congress to repay market funding or to payout insured deposits.
  - Although accessing markets or borrowing from individual financial institutions could be difficult in system-wide distress, advance arrangements (e.g., a line of credit with a consortium of banks and bridge financing from Banxico before accessing other funding) are desirable to ensure effective and timely access when required (IADI CP9, EC4).

- Legacy debt and fund composition:
  - IPAB carries legacy debt from the mid-1990s systemic crisis (‘tequila crisis’).
  - Each year 75 percent of banks’ contributions to IPAB are allocated to service this debt; with a matching contribution from the government for another 30 years, this debt is projected to be fully repaid in 2069.
  - The remaining 25 percent of annually collected fees are used for IPAB’s operating expenses (around one percent of the fees) and for the Bank Savings Protection Fund (FPAB).
  - Resulting fund level: FPAB stood at 1.4 percent of insured deposits at end-2021, which can fund the resolution/payout of the smallest 75 percent of commercial banks.
- FPAB adequacy and projections:
  - Current FPAB would be insufficient to cover the concurrent failure of the largest 3–4 non-SIBs or the largest 6–8 smaller banks.
  - IPAB calculations indicate a need for a fund equivalent to 2.8–4  .5 percent of insured deposits to adequately cover these scenarios—especially given IPAB’s responsibility for resolution funding of SIBs.
  - IPAB projects that under the current funding structure, FPAB would reach 3.4 percent of insured deposits in 2027 and 5.1 percent in 2032.
  - In terms of eligible deposits, these projections translate to 2.2 percent in 2027 and 3.6 percent in 2032.
  - The process of reaching target levels could be expedited by relieving IPAB from the legacy debt; recent two failures reduced FPAB from 2 percent to 1.4 percent of insured deposits.

### Public awareness and financial education
- IPAB has a comprehensive communications infrastructure used during recent bank failures; communication differentiated by demographic groups and targeted depositors of failed banks in 2020 and 2021.
- Awareness metrics from the triennial national financial education survey:
  - 28.5 percent of surveyed adults are aware that savings are insured by IPAB in 2021.
  - 24.9 percent in 2015 when deposit insurance awareness questions were introduced.
- Context and recommendation:
  - These awareness numbers should be understood against about one-third of the adult population being unbanked.
  - The MFAs should aim to increase public awareness of deposit insurance to a large majority of both depositors and unbanked adults.

### Financial crisis preparedness and interagency cooperation
- Institutional cooperation and frameworks:
  - IPAB and CNBV boards include high-level representatives from other MFAs.
  - The CEB is a platform where all MFAs meet to decide on a failing bank’s systemicness and the extent of liability protection in resolution, which determines resolution options and guides IPAB.
  - IPAB and Banxico adopted internal guidelines for the information they will provide the CEB.
  - Existing MOUs: IPAB-Banxico (2012), IPAB-CNBV (2015), and guidelines among all MFAs (2000).
  - MFAs are preparing an MOU for interagency consultations on recovery plans and the scoring framework for plan reviews.
- Areas for consideration:
  - Whether existing MOUs need updating.
  - Whether CNBV should detail the information it will provide the CEB and whether MFAs should elaborate on statutory criteria for determining a failing bank’s systemicness.
  - Whether components of the resolution framework (such as the COR and TOBA) could benefit from jointly agreed procedures and policies.
  - Consider making policy and operational documentation more accessible and practical than financial legislation.
- Crisis simulation and preparedness:
  - IPAB has experience managing:
    - Accendo in 2021: about 1,500 insured depositors and US$ 66 million in insured deposits.
    - Famsa in 2020: 633,000 insured depositors and US$ 1.2 billion in insured deposits.
  - In 2019, IPAB simulated the payout process for a bank with over 600,000 depositors; lessons were used in the Famsa failure.
  - Preparations for an interagency systemic crisis simulation halted by COVID-19; the simulation would test response to a cybersecurity incident and its financial fallout.
  - Recommendation: Continue preparing with policy guidance, operational manuals, playbooks, and regular table-top and simulation exercises for diverse failure scenarios, including fast-fail resolutions of SIBs and midsize banks and concurrent failures where impediments to resolvability exist or operational continuity is challenged (e.g., cybersecurity incidents).
  - Preparations should include swift P&A transactions with bridge banks followed by sales to private purchasers to reduce dependence on liquidations with payouts for larger midsize banks.

### Appendix: 2016 FSAP recommendations — selected implementation status (2016 → 2022)
- Of the 22 recommendations, 12 were implemented and 4 were partially implemented.
- Selected items:
  - Recommendation 1: Strengthen IPAB’s independence (appoint independent Board Chair; include a timeframe for the Executive Secretary’s mandate; objective revocation criteria; public disclosure of reasons for early dismissal) — Not Implemented. Authorities stated IPAB’s governance follows Mexico’s framework for federal parastatal entities.
  - Recommendation 2: Relieve IPAB from its legacy debt; adopt a target fund ratio; finalize IPAB-Banxico agreement for bridge funding from Banxico prior to borrowing from the banking sector — Not Implemented. Legacy debt persists; projected full repayment in 2069; no modalities for IPAB borrowing from Banxico worked out.
  - Recommendation 3: Conduct internal and external review of IPAB’s public policy objectives — Implemented. IPAB undertakes and publishes biannual self-assessments and annual activity and financial reports; subject to audits by Auditoría Superior de la Federación and other government auditors (internal audit body and public commissioner).
  - Recommendation 4: Conduct public awareness survey on deposit insurance knowledge — Implemented. The triennial National Survey for Financial Education shows 28.5 percent awareness in 2021.
  - Recommendation 5: Strengthen recovery planning expectations and risk-based approach — Implemented. Recovery planning requirements set in Article 119 of the Credit Institutions Law and Annex 69 of the Banking Single Rulebook; Annex 69 updated in September 2022 (effective January 2023).
  - Recommendation 6: Accelerate resolution planning program — Implemented. IPAB has developed resolution plans for all commercial banks; some updated once.
  - Recommendation 7: Develop written guidelines for timely collective CEB decisions on systemic determinations — Not Implemented. CEB members continue contributing based on respective mandates and methodologies and follow statutory creditor hierarchy.
  - Recommendation 8: Include IPAB in the licensing process — Implemented. CNBV consults IPAB on shareholder and manager suitability and meets with prospective banks to discuss deposit insurance obligations.

*Source: IMF Financial Sector Assessment Program — Mexico (chapter content as provided).*

### 9. Preposition a bridge bank and

### 9. Preposition a bridge bank and

### Bridge bank establishment and preparedness
- Implemented: IPAB has adopted internal procedures for the “Establishment, organization and operation of commercial banks by IPAB (Bridge Bank),” setting out the model corporate charter and model contracts for asset and liability transfers, and the provision of services.
- Implemented: IPAB has developed methodologies for valuations for purposes of a bridge bank.
- Note: The ex-ante incorporation of a bridge bank without using it in the near term would be costly.
- IPAB’s 2016 systemic bank resolution simulation covered using bridge banks for non-SIBs.

### Use of TOBA framework (transfer of obligations and banking activities)
- Implemented: The Credit Institutions Law sets out the conditions and procedures for TOBA.
- Implemented: IPAB has operational manuals for TOBA covering the communications strategy, the appointment of and oversight over conservators, the conditions for loan and capital support, the calculation of capitalization levels, and accountability toward Congress.
- Implemented: IPAB has a valuation methodology; third parties that it engages for valuations follow a similar methodology.
- Implemented: Some banks under TOBA will likely avail themselves of the COR, requiring a CNBV-approved capital restoration plan, including measures to improve operational efficiency and to reduce certain transactions.

### Additional resolution tools and P&A transactions
- Partially Implemented: Preparations were made for the bridge bank tool, but legal constraints hinder the use of P&A transactions.

### Resolution regime coverage for FHCs and development banks
- Not Implemented: The MFAs have not planned to introduce a resolution regime for FHCs, arguing that the holding companies “have mainly a non-operational role.”
- Not Implemented: Only two development banks take deposits—the largest serves members of the armed forces—and held 4.1 percent of total bank deposits at end 2021; development banks are fully guaranteed by the federal government, and the MFAs do not deem it necessary to introduce deposit insurance for deposit-taking development banks.
- Assessment: This approach is inconsistent with IADI CP7, EC1, which requires membership of a deposit insurance system for all banks, “including state-owned banks (with or without explicit guarantees).”

### Interagency collaboration and access to ELA
- Partially Implemented: Banxico has published its rules for the Additional Ordinary Liquidity Facility and Credits of Last Resort, and its internal protocols prescribe informing the other MFAs about ELA requests and decisions.
- Partially Implemented: The new Guidelines on Resolution Planning require plans to identify impediments to resolvability and measures to mitigate or eliminate them; IPAB and CNBV have not agreed on approaches for mitigating or removing these impediments.
- Status on subordinated debt: Due to their 10-year time horizon, there are no outstanding pre-2013 subordinated debts.

### Conditional operation regime (COR) and conservatorship
- Partially Implemented: The Credit Institutions Law sets out the conditions and procedures for COR and conservatorship.
- Partially Implemented: Neither CNBV nor IPAB have internal COR policies—or a joint MOU; they would decide on COR authorizations on a case-by-case basis, with CNBV consulting IPAB.
- Implemented (2016): IPAB adopted internal rules for the selection and appointment of conservators, including their responsibilities and the objective of conservatorship.
- Operational trigger: A bank with a CAR below 8 percent and above 4.5 percent can be resolved if it is unwilling or unable to use the COR.

### Contingency planning and simulation exercises
- Partially Implemented: While MFAs individually undertake simulation exercises, there are no collective system-wide contingency preparations, and no collective simulation exercise for a systemic event was undertaken since 2011.
- Note: Preparations for an interagency crisis simulation were well advanced when postponed due to the COVID-19 outbreak; this exercise will test the MFAs’ response to a cybersecurity incident and the resulting financial fallout.

### Deposit insurance and resolution funding analysis
- Implemented: IPAB has built a fund that could cover the individual resolution and payout of many smaller banks despite legacy debt weighing on its finances.
- Implemented: A 2017 IPAB assessment concluded that a target range between 2.0 and 4.5 percent of eligible deposits would be appropriate; the lower level is projected to be reached in 2027.
- Status: IPAB is updating its analysis and projections in the aftermath of two recent bank failures.

### Liquidity funding in resolution
- Implemented: IPAB has determined that it cannot provide liquidity funding in resolution.
- Implemented: Subject to conditions, banks in resolution can access liquidity funding from Banxico.

### Loss-absorbing instruments and subordinated debt
- Implemented: TLAC was introduced in 2021, which will be phased in through 2025.
- Implemented: The 400 million Unidades de Inversión limit of capital instruments that could be included in the regulatory capital of banks whose shares (or those of their FHC) were not listed on a stock exchange was eliminated in 2017.

### Cross-border cooperation and payout arrangements
- Implemented: IPAB has concluded MOUs with all major home jurisdictions of the Mexican DSIBs; these bilateral agreements complement firm-specific cooperation arrangements supporting international banks’ CMGs.
- Implemented: Since April 2020, IPAB uses a major commercial bank with an extensive branch network as its agent for payouts.
- Implemented: Together with this paying agent, IPAB has developed payout processes with cheques, payment orders, wire transfers, and cardless withdrawals at automated teller machines; these new reimbursement methods were used for the two banks that failed in 2020 and 2021.

### Merger-related temporary high deposits and pari passu treatment
- Not Implemented: No legislative changes were introduced to cover temporary high deposits due to a merger or P&A as required by IADI CP8, EC6.
- Not Implemented: The Mexican legal system does not allow departing from pari passu treatment under any circumstances.

*Source: 1mexea2022004 - 9. Preposition a bridge bank and (chapter content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1mexea2022004.pdf_