Press Release: Mexico's Banking System is Resilient, but Global Risks Have Increased, IMF Says

IMF News, March 30, 2012

Source details

Canonical URL

Press Release: Mexico's Banking System is Resilient, but Global Risks Have Increased, IMF Says

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: IMF Factsheet
• Published: March 30, 2012

Overall assessment and context

• Press Release No. 12/111 — March 30, 2012.
• The IMF’s 2011 Financial Sector Assessment Program (FSAP) update for Mexico finds the financial system "very positive" overall, noting resilience during the first wave of the global financial crisis and contained spillovers despite sharp falls in economic activity in 2009 and severe stress in financial markets.
• Direct quote: “Overall, our assessment of Mexico’s financial system is very positive,” said Fernando Montes-Negret, a Senior Financial Sector Expert in the Monetary and Capital Markets Department and head of the IMF team that conducted the FSAP update. “The country has better tools for systemic crisis management and competent supervision. However, there have been episodes of international distress in recent years and, given Mexico’s significant linkages to the global economy and to Spanish banks, the authorities need to monitor closely and respond quickly to emerging international and domestic risks.”
• FSAP history and pipeline:
  • First FSAP in Mexico: 2001; update: 2006; 2011 assessment is part of a series of big-country FSAPs.
  • After evaluations in China, Russia, and Germany in 2011, the IMF expects to evaluate some 18 countries within the next two years, including Argentina, Brazil, France, Japan, and Spain.
  • Mexico is one of 25 systemically important countries that have agreed to mandatory assessments at least once every five years.

Capital buffers and stress testing

• Findings:
  • Mexico used sound policy responses and a rebound in demand to contain spillovers from the failure of unregulated housing financing companies and the bursting of a consumer lending boom.
  • Following economic recovery in 2010, stress tests conducted by the IMF suggest the Mexican banking system is able to withstand severe shocks.
  • The strength of capital buffers enabled authorities to aim to complete the introduction of the new Basel III capital requirements in 2012, well ahead of other countries.

Concentration and systemic risks

• Key statistics and findings:
  • The seven largest financial groups managed about three-quarters of total financial assets of over US$ 600 billion at end-June 2011.
  • High concentration and conglomeration, together with foreign ownership, pose important challenges.
  • Concentrated loan portfolios increase credit and contagion risks, which are currently not sufficiently monitored and addressed by current regulations and supervisory practices.
  • Given the relatively small size of the Mexican financial system, there is significant scope for further deepening as financial inclusion progresses and capital markets develop.

Supervisory architecture and institutional recommendations

• Recommended institutional improvements:
  • Establish a fixed term for the President of the Comision Nacional Bancaria y de Valores (CNBV) (referred to in the report as the President of the Banking and Securities Commission) and adjust the composition of its Board.
  • Rebalance the CNBV Board to strengthen institutional framework for financial supervision.
  • Consider a new supervisory architecture separating prudential and market-conduct roles to reduce overlaps of responsibilities and improve the ability to cope with an ever more integrated and complex financial sector.
• Already implemented strengthening:
  • Macro-financial oversight and crisis management have been strengthened with the establishment of the Financial System Stability Committee (FSSC), described as a substantial upgrade following the last stability assessment in 2006.

About the FSAP methodology and mandate

• The Financial Sector Assessment Program, established in 1999, is an in-depth analysis of a country’s financial sector.
• FSAP practice:
  • The IMF conducts mandatory FSAP Updates for the 25 jurisdictions with systemically important financial sectors, and for any member countries that request it.
  • Assessments in developing and emerging market countries are conducted jointly with the World Bank.
  • FSAPs include two components:
  • A financial stability assessment (responsibility of the Fund).
  • In developing and emerging market countries, a financial development assessment (conducted by the World Bank).
• To assess stability, IMF teams:
  • Examine the soundness of the banking and other financial sub-sectors.
  • Rate the quality of bank, insurance, payments, and capital market supervision against accepted international standards.
  • Evaluate the ability of supervisors, policymakers, and financial safety nets to respond effectively to a systemic crisis.
• Limitations noted:
  • FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, but they identify the main vulnerabilities that could trigger one.
• In September 2010, the IMF made financial stability assessments every five years under the FSAP mandatory for jurisdictions deemed systemically important. The list of these countries includes: Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, Japan, India, Ireland, Italy, Luxembourg, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.

Source: IMF Press Release No. 12/111, March 30, 2012.

References

• Mexico and the IMF
• Press Releases
• PRESS CENTER
• expects to evaluate some 18 countries within the next two years
• IMF Expanding Surveillance to Require Mandatory Financial Stability Assessments of Countries with Systemically Important Financial Sectors
• Factsheet: The Financial Sector Assessment Program (FSAP)
• FSSA Country Reports
• https://www.imf.org/en/home