{
  "title": "Mexico: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management",
  "publication": "IMF Staff Country Reports, November 10, 2022",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2022/11/09/mexico-financial-sector-assessment-program-technical-note-on-systemic-liquidity-management-525576",
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  "summary": "Mexican money markets are well-regulated and function efficiently, with significant mitigants to systemic liquidity risks.",
  "sections": [
    {
      "heading": "Summary of system-wide liquidity conditions and market structure",
      "content": "- Mexican money markets are well-regulated and function efficiently.\n- The repo market dominates system-wide liquidity management.\n- Interbank unsecured transactions are at a marginal level.\n- Commercial banks have full compliance with the Liquidity Coverage Ratio (LCR).\n- Development banks are not subject to liquidity regulation.\n- Some development banks have significant reliance on short-term funding and low levels of unencumbered high-quality liquid assets.\n- These features could contribute to systemic liquidity risk during periods of extreme market stress in severe tail risk scenarios."
    },
    {
      "heading": "Key risks and vulnerabilities",
      "content": "- Concentration of liquidity management in the repo market implies reliance on collateralized funding conditions.\n- Marginal interbank unsecured activity reduces unsecured market resilience in stress episodes.\n- Development banks’ exemption from liquidity regulation, combined with explicit sovereign guarantees of their liabilities and sovereign backstops of their capitalization, leaves a residual systemic vulnerability when those institutions rely on short-term funding and hold low unencumbered HQLA.\n- Potential amplification of systemic liquidity risk under severe tail events due to development banks’ maturity transformation and funding profiles."
    },
    {
      "heading": "Policy recommendations and supervisory considerations",
      "content": "- Strengthen development banks’ liquidity risk management framework by:\n  - Improving monitoring of their liquidity.\n  - Leveraging their internal risk committees to take stock of their risk profile and contribution to systemic risk.\n  - Making use of Pillar 2 requirements.\n  - Devising appropriate action(s) to improve these entities’ maturity transformation.\n- Consider supervisory or regulatory measures to address development banks’ reliance on short-term funding and low levels of unencumbered high-quality liquid assets to mitigate tail-event systemic liquidity risks.\n\n---\n\n Content in this bundle\n\n- Executive Summary\n  - Executive Summary (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Executive Summary (PDF){rel=\"external\" type=\"application/pdf\"}"
    }
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    "[Markdown version](/en/publications/cr/issues/2022/11/09/mexico-financial-sector-assessment-program-technical-note-on-systemic-liquidity-management-525576/index.md)",
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    "Published: November 10, 2022",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9798400222733.002",
    "Mexican money markets are well-regulated and function efficiently.",
    "The repo market dominates system-wide liquidity management.",
    "Interbank unsecured transactions are at a marginal level.",
    "Development banks are not subject to liquidity regulation.",
    "Some development banks have significant reliance on short-term funding and low levels of unencumbered high-quality liquid assets.",
    "These features could contribute to systemic liquidity risk during periods of extreme market stress in severe tail risk scenarios.",
    "Concentration of liquidity management in the repo market implies reliance on collateralized funding conditions.",
    "Marginal interbank unsecured activity reduces unsecured market resilience in stress episodes.",
    "Development banks’ exemption from liquidity regulation, combined with explicit sovereign guarantees of their liabilities and sovereign backstops of their capitalization, leaves a residual systemic vulnerability when those institutions rely on short-term funding and hold low unencumbered HQLA.",
    "Potential amplification of systemic liquidity risk under severe tail events due to development banks’ maturity transformation and funding profiles.",
    "Strengthen development banks’ liquidity risk management framework by:",
    "Consider supervisory or regulatory measures to address development banks’ reliance on short-term funding and low levels of unencumbered high-quality liquid assets to mitigate tail-event systemic liquidity risks.",
    "**Executive Summary**"
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