Mexican Financial System Research Articles

The New Forms of Economic Dominance in Latin American Economies in the Globalised Era: A Glance at Mexico’s Financial System

ABSTRACT In this paper, we discuss whether economic backwardness in Latin American countries is due to financial limitations (currency weakness and reduced liquidity) or a result of productive structural imbalances. To answer this question, we briefly review the main concepts in Latin American Dependency theories. We then examine the main features of globalisation and internationalisation in the late 20th century, and the Post-Keynesian explanation of economic subordination. Finally, we review the Mexican balance of payments and the main components of the Mexican financial system, including the central bank. We conclude that Mexico’s subordinate position is due to historic productive structure dependence and foreign capital intervention that, in the period of globalisation and internationalisation, added financial instability to economic backwardness, thus impeding the financial and productive systems from fully developing.

Propuesta de mapa térmico del sistema financiero mexicano con alertas tempranas de inestabilidad

This research developed a heat map of the Mexican financial system to identify its vulnerabilities. The proposed methodology extends that used by Bank of Mexico (Banxico), and its advantages are: 1) the number of variables is reduced to those originally used by Banxico (from 58 to 23) discarding redundant variables; 2) 22 of the 23 variables are available on public platforms; and 3) the category of “risk appetite” is the item that generates the greatest instability; 4) it generates early warnings of overdue loans and the import index; the latter indicator may have repercussions on Banxico's inflation target. It also discusses how the identified risk factors can be magnified by COVID-19. Finally, the proposed thermal map is novel due to the generation of early warnings, in addition to the fact that such a proposal allows the detection of additional risk elements to those indicated by the Central Bank.JEL Classification: E44; E58; G12; G21; G28.

Quantification of systemic risk from overlapping portfolios in the financial system

Financial markets create endogenous systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of financial contagion arises from indirect interconnections between financial institutions mediated by financial markets. This indirect interconnection occurs when financial institutions invest in common assets and is referred to as overlapping portfolios. In this work we quantify systemic risk from indirect interconnections between financial institutions. Complete information of security holdings of major Mexican financial intermediaries and the ability to uniquely identify securities in their portfolios, allows us to represent the Mexican financial system as a bipartite network of securities and financial institutions. This makes it possible to quantify systemic risk arising from overlapping portfolios. We show that focusing only on direct interbank exposures underestimates total systemic risk levels by up to 50% under the assumptions of the model. By representing the financial system as a multi-layer network of direct interbank exposures (default contagion) and indirect external exposures (overlapping portfolios) we estimate the mutual influence of different channels of contagion. The method presented here is the first quantification of systemic risk on national scales that includes overlapping portfolios.

Cross-border effects of regulatory spillovers: Evidence from Mexico

This paper studies the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan demand by the non-tradable sector to changes in household credit supply range from 1.2–1.8. These results emphasize cross-border effects of regulations in the presence of global banks.

La autenticación y verificación de la identidad a través de información biométrica como paradigma del tratamiento de datos personales en México

El rápido progreso de las tecnologías biométricas y su aplicación generalizada en el sistema financiero mexicano, precisan de un estudio pormenorizado desde el punto de vista de la protección de datos personales. Dado que los datos biométricos han sido incluidos de manera incipiente en la normativa mexicana, en el presente artículo, se analiza su régimen jurídico desde el contexto europeo, abordándose además, las ventajas e inconvenientes que puede suponer la implantación de sistemas de almacenamiento masivo de información biométrica, a la luz de los derechos fundamentales de los individuos. Finalmente, apuntaré posibles soluciones que supongan una menor intrusión contra los derechos de los usuarios y clientes de las instituciones financieras.

THE FINANCIALIZATION PROCESS AND ITS EFFECTS ON THE MEXICAN PRODUCTIVE SECTOR (1990-2016)

The process of economic financialization is defined as a stage of the capitalist system in which the profits obtained through financial channels acquire a growing importance, regarding to those related to production and distribution. The effects of this process are not limited to the financial sector, they also impact the productive one, at a macro and micro-economic level.In this sense, the Mexican Financial System (SFM) has gone through reforms arising from the adoption of a neoliberal growth model; according to which that financial liberalization contributes to the strengthening of both the financial and productive sector, creating a positive relationship among them.
 With the objective of evaluating, if this has materialized in the case of the Mexican economy,in this work is carried out; on one hand, a descriptive statistical analysis on the evolution of the financing granted to the productive sector; and on the other hand, an econometric analysis through a panel data model, relating to the plant investment; to identify the effects of such process, in the levels of productive reinvestment. That is, through the analysis of the two main links between the sectors involved, the implied risks of the process of financialization are showed, for a developing economy as the Mexican.

Cross-Border Effects of Regulatory Spillovers: Evidence from Mexico

I study the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan-demand by the non-tradable sector to changes in household credit supply range from 1.6–3.5. These results emphasize the potential for cross-border effects of regulations in the presence of global banks.

Analyzing the Size, Diffusion, and Spillover ff Loans Risk

We analyze the diffusion and spillover effects of credit risk among banks within a banking system, using the Mexican financial system as case study. Our proxy to measure credit risk is the non-performing loans ratio (NPL). For this purpose we construct a VAR model to identify the composition of the variance of NPL's ratios dividing it into two parts: one that is explained by the VAR coefficients, and the other attributed to the contemporary error or shocks on other banks in the sistems. The eror in the structural model represents the that disturbs the stable risk in each period. Our work builds on the spillover index proposed by Deibold and Yilmaz (2009) that indicates the degree on which the overall risk in the systems is explained by the spillover effects. The method allows us to measure the long-run contributions of each bank¥s risk on the rest of the banking system through the diffusion of risk between intermediaries. Moreover, we are able to gauge the relative importance of spillover by increasing the length of prediction periods for each bank's NPL. Our estimations for the Mexican banking system between 2002 and 2013 suggest that the overall spillover effect index accounts for 15 percent of the aggregate risk's observed variation in the short term and almost 40 percent in the long term. The spillover effect explains 32 porcent of total risk in the short term and 78 percent in the long term when we control for individual bank's characteristics, even though the total size of risk originated by news in the banks decreases relative to the model without control variables.

The nexus between business groups and banks: Mexico, 1932–1982

Over the twentieth century, the Mexican financial system emerged embedded in business groups, as a way of serving their financial needs. Until 1982, Mexico's banking system experienced unprecedented expansion. This article explains how, despite extensive insider lending practices, the relationships between business groups and financial intermediaries were sound enough to sustain them: first, because the commercial banks developed a certain autonomy from their related business groups; and second, because counterbalanced decision-making occurred when property was shared by two or more business groups. However, the ownership of banks remained concentrated in the hands of the business groups.

Financial contagion: extending the exposures network of the Mexican financial system

Direct contagion has been widely studied in recent years and little evidence has been found to be relevant to the study of systemic risk. However, we argue that this limited contagion effect might be associated with a lack of relevant data. A common assumption for the estimation of the matrices of exposures is to apply the maximum entropy principle to deal with data gaps; such an assumption might lead to an underestimation of contagion risk. In this paper, there are no data gaps and the information set is extended from interbank exposures alone to exposures among most of the financial intermediaries in the Mexican financial system (we even include exposures to some international foreign banks). Naturally, the contagion risk of an extended network of exposures changes with respect to the interbank exposures network, as there are many more institutions which can be the source of contagion and there are more institutions which can fail due to contagion. The most important contribution of this paper is that it provides evidence on financial contagion with an extended exposures network under stressful conditions. The results presented here support the international efforts by the Bank for International Settlements, the International Monetary Fund and the Financial Stability Board to increase the amount of information available which can be used to assess systemic risk and contagion based on exposures and funding data.

Crédito bancario y crecimiento económico en México

This paper briefly describes the process in which foreign banks have increased their participation in the Mexican financial system; some of the main features of the credit market are also mentioned, such as scarcity, concentration and market power of the main participants, as well as high interest rates charged. On the demand side, some of the main elements that limit the access of small and medium enterprises to the private credit (that is, informality and informal credit) are also mentioned. The second part of the article explores the way banking credit supports economic growth. In spite of the fact that this relationship is found in many theoretical and empirical works, in the case of Mexico, it was not validated by this work. One of the possible causes of this result is that financial institutions in the country have not privileged the productive sector as the main destination of its credit. Commercial banks have preferred to provide credit to the government (due to its very low delinquency rates) and to consumption (because of the high interest rates they charge on it).

Spillovers and Long Run Difussion of Non-Performing Loans Risk

This paper analyzes the diffusion and spillover effects of credit risk among banks within a banking system, using the Mexican financial system as a case study. Credit risk is measured by the non-performing loans ratio (NPL). Our method builds on work by Diebold and Yilmaz (2009) to decompose spillovers observed among banks’ portfolio risk. The method allows us to measure the long-run contributions of each bank’s risk on the rest of the banking system through the diffusion of risk among intermediaries. Moreover, we are able to gauge the relative importance of spillover by increasing the length of prediction periods for each bank’s NPL. Our estimations for the Mexican banking system between 2000 and 2010 suggest that the overall spillover effect index accounts for 60 to 75 percent of the observed variation and that the longer the time period we consider, the stronger this spillover effect is. Moreover, contrary to the common view, the spillover effect realized through the diffusion of risk is bidirectional between small and large banks, rather than only one type affecting the other

Banking Regulation in Mexico: lessons FRoM Financial Crises

This article first provides a survey of recent Mexican banking history. It then analyzes the causes that led to the peso crisis (1995) and the banking crisis that came after as well as the government response, the bank bailout, and the role of international financial organizations. Regulatory reforms of the Mexican financial system are also discussed. These provide the background for comparative analysis with the financial crisis (2007-2009) that initiated in the United States of America. Both crises are compared and contrasted, both in terms of the causes leading to them and the regulatory responses by the governments. Finally, by studying the similarities and differences, lessons are drawn from both cases.

Innovación financiera y crecimiento económico

La presente colaboración desarrolla los antecedentes y resultados del actual sistema financiero mundial, exponiendo que en las últimas tres décadas, esté atravesó por profundos cambios institucionales, creándose instituciones no bancarias que borraron las fronteras entre la actividad de la banca de inversión y la comercial. Activándose así los mercados de valores cuyas funciones modificaron todas las estructuras e instrumentos financieros, tanto de países desarrollados, como en desarrollo: Lo que convirtió al sistema financiero mundial en un gran mercado de capitales. En la primera sección se presentan las características dominantes del sistema financiero en los países desarrollados. En la segunda se destacan las particularidades de los mercados financieros de los países en desarrollo, distinguiendo el comportamiento del sistema financiero mexicano. La tercera analiza los efectos de la liquidez sobre la disponibilidad crediticia y, finalmente en la cuarta presenta relevantes conclusiones de su trabajo.

The Mexican Economy, 1870-1930: Essays on the Economic History of Institutions, Revolution, and Growth, edited by Jeffrey L. Bortz and Stephen Haber and The Power and the Money: The Mexican Financial System, 1876-1932, by Noel Maurer

<i>The Mexican Economy, 1870-1930: Essays on the Economic History of Institutions, Revolution, and Growth</i>, edited by Jeffrey L. Bortz and Stephen Haber and <i>The Power and the Money: The Mexican Financial System, 1876-1932</i>, by Noel Maurer

Reviews of Books:The Power and the Money: The Mexican Financial System, 1876-1932 Noel Maurer

Reviews of Books:The Power and the Money: The Mexican Financial System, 1876-1932 Noel Maurer

The power and the money: the Mexican financial system, 1876-1932

Introduction 1 1. Political Instability and Financial Concentration 13 2. Structuring the Credit Market 34 3. Central Banking in Porfirian Mexico 48 4. The Consequences of Credibility 70 5. Financial Capitalism in the Porfiriato 93 6. Banks and Industrial Concentration 115 7. Financing a Revolution 134 8. Reconstructing Confidence 160 Conclusion 195

Crises of Confidence: Attitudes of the Domestic Bankers Towards the Credit Problem in Mexico

This paper analyses the Mexican banks’ loan policies since 1995. Based on a series of interviews, we find that Mexico’s financial system is currently experiencing two crises. First, banks lack confidence in the business practices of small and medium size enterprises. This negative attitude is reinforced by the bankers’ perception of a culture of non‐repayment. Banks also loan little to big businesses, which rely on the international money market. Second, bankers believe small and medium size business owners lack confidence in the Mexican financial system. Consequently, loan activities are down significantly. Socio‐economic growth and development in Mexico will depend upon a profound change in structures, practices and attitudes surrounding loan activities.

Mexico: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Monetary and Financial Policy Transparency; Payment Systems; Banking Supervision; Securities Regulation; and Insurance Supervision

This report reviews the main laws and regulations governing the Mexican financial system, and analyzes the financial system stability in Mexico. The study assesses the implementation of macroeconomic policies, the process of bank restructuring and consolidation, and sectoral and infrastructure factors. The paper also highlights the Observance of the Code of Good Practices on Transparency in Monetary and Financial Policies; Systemically Important Payment Systems; Basel Core Principle for Effective Banking Supervision; Insurance Supervisory Principles; and Objectives and Principles of Securities Regulation.

Los intermediarios financieros en México: posibles escenarios en el marco TLC

La posibilidad que abre el TLC a las instituciones financieras de Estados Unidos y Canadá para penetrar al mercado mexicano, es muy importante, su presencia puede aumentar la competencia en el sector financiero elevando la eficiencia y bajando los márgenes financieros. El objetivo del presente estudio es analizar los lineamientos del Tratado de Libre Comercio de América del Norte en lo que se refiere a las instituciones financieras y la incidencia que puede tener la penetración de éstas al mercado financiero mexicano, con un énfasis particular sobre los intermediarios financieros no bancarios. El artículo llega a la conclusión de que, con la entrada en vigor del TLC empieza una nueva fase de internacionalización del sistema financiero mexicano, que implica la entrada a instituciones financieras extranjeras, la mayor parte de las cuales son intermediarios financieros no bancarios, que gozan de mayores beneficios dentro de los reglamentos de este tratado.