Mexican Banks Get Ahead of New Global Capital Standards

Edward C. Skelton, Federal Reserve Bank of Dallas, 9/2012

Mexico is a prominent example of an emerging-market economy with a world-class macroeconomic policy framework and stable financial system. Even when the Mexican economy contracted 6 percent and per-capita gross domestic product (GDP) dropped almost 10 percent in 2009, the banking system remained strong. Although earnings have fallen over the past three years, Mexican banks have managed to post relatively healthy and consistent profits for more than a decade (Chart 1). By comparison, U.S. institutions lost money in 2009 and subsequently recorded a return on assets of about half the Mexican sum.

The impending adoption of worldclass capital adequacy standards highlights the Mexican system’s advances. Following the global financial crisis, the Basel Committee on Banking Supervision released new capital and liquidity requirements for the industry worldwide.2 Mexico has announced it will install the Basel III capital standards by early 2013 and plans to be one of the first countries to complete full implementation. Financial regulators elsewhere are also introducing new capital regulations consistent with Basel III. However, most countries, including all of the industrialized economies, have indicated they will phase in the more stringent requirements over the next few years.

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