Presentacin de PowerPoint

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The Public Finances of Mexicos 1995 Banking
Crisis
Jorge A. Chávez Presa Arlington, VA. USA
October 2008
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I. Content

• Preceding events
• Preparing the environment for the financial
  crisis
• The change of the economic environment
• Fobaproa the means to finance an emergency the
  banking crisis of 1995
• IPABs finance
• Preliminary conclusions

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• Preceding events

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I. Preceding events

• A banking crisis starts building up within a
  macroeconomic framework
• After enjoying an oil boom since 1978 until 1981,
  with an increase in oil revenues from exports, US
  monetary policy with the increase in interest
  rates to fight inflation ends comfortable times.
• The US economy enters into a recession, demand
  for oil diminishes bringing the price of oil
  down. Thereby, Mexicos terms of trade
  deteriorate.
• In 1982 Mexico nationalizes the commercial
  banking system and introduces an exchange rate
  control, after decades of free exchange.
• The Mexican economy is unable to meet its
  international financial commitments.
• Hence, international capital markets are closed
  for Mexico.
• Net foreign transfers are a binding constraint
  for domestic economic growth.
• This changes until the 1989 renegotiation of
  Mexicos foreign debt, which renders a
  significant drop in real interest rates

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• Preparing the environment for the financial crisis

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II. Preparing the environment for the financial
crisis
Figure 1
Note This graph presents the broad economic
debt, which incorporates net liabilities of the
federal government, parastatal sector and
government financial intermediaries
Source Banco de México and INEGI
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II. Preparing the environment for the financial
crisis

Figure 2
Note This graph presents the broad economic
debt, which incorporates net liabilities of the
federal government, parastatal sector and
government financial intermediaries
Source Banco de México and INEGI
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II. Preparing the environment for the financial
crisis

Figure 3
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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II. Preparing the environment for the financial
crisis

Figure 4
Source Banco de México and Asociación de Bancos
de México
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II. Preparing the environment for the financial
crisis

Figure 5
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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II. Preparing the environment for the financial
crisis

Figure 6
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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II. Preparing the environment for the financial
crisis

Figure 7
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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II. Preparing the environment for the financial
crisis

Figure 8
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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II. Preparing the environment for the financial
crisis

Figure 9
Source Banco de México
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II. Preparing the environment for the financial
crisis

Figure 10
Source Banco de México
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• The change of the economic environment

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III. The change of the economic environment

Figure 11
Source Banco de México
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III. The change of the economic environment

Figure 12
Source Banco de México and INEGI
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III. The change of the economic environment

Figure 13
Source Banco de México and INEGI
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III. The change of the economic environment

Figure 14
Source Banco de México and INEGI
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III. The change of the economic environment

Figure 15
Source Prepared with information of ITG
Consultores en Finanzas Públicas.
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III. The change of the economic environment

Figure 16
Source Cámara de Diputados.
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III. The change of the economic environment

Figure 17
Chiapas
J.F. Ruiz Massieu
Colosio
Source Banco de México
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III. The change of the economic environment

Figure 18
Source Banco de México
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III. The change of the economic environment

Figure 19
Source Banco de México
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III. The change of the economic environment

1991 Commercial Bank
1994 Commercial Bank
Cash
Cash
All kind of deposits and funds
All kind of deposits
Government securities
Government securities
Deposits in the Central Bank
Private sector credit Business Housing
Credit card Consumption
Other banks financing
Other banks financing
Deposits in the Central Bank
Private sector credit (Business, Housing,
credit card, consumption)
Capital
Capital
Fix assets
Fix assets
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• Fobaproa the means to finance an emergency the
  banking crisis of 1995

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IV. Fobaproa the means to finance an emergency
the banking crisis of 1995

Figure 20
Source Cámara de Diputados del H. Congreso de la
Unión
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IV. Fobaproa the means to finance an emergency
the banking crisis of 1995

Figure 21
Source Cámara de Diputados del H. Congreso de la
Unión
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• IPABs finance

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V. IPABs finance

Figure 22
Source Instituto para la Protección al Ahorro
Bancario
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V. IPABs finance

Figure 23
Source SHCP, INEGI and Instituto para la
Protección al Ahorro Bancario
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V. IPABs finance

Figure 24
Source Instituto para la Protección al Ahorro
Bancario
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V. IPABs finance

Figure 25
Source Instituto para la Protección al Ahorro
Bancario
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V. IPABs finance

Figure 26
Source Instituto para la Protección al Ahorro
Bancario
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• Preliminary conclusions

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VI. Preliminary conclusions

• Banking or financial crises are not generated
  spontaneously. They are the result of credit
  expansion without control.
• The deposit insurance fund is effective in
  isolated cases of bank insolvencies.
• In systemic crisis of the financial system,
  federal/national government intervention is
  necessary in order to provide the necessary
  resources for adequate bank resolutions.
• The federal government financial statements open
  space to accommodating liabilities from the
  banking system.

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VI. Preliminary conclusions

• Healthy public finances allow to accommodate the
  interest payment of these new government
  liabilities through the annual budget.
• Regulation and supervision of the financial
  system, and particularly the banking system,
  cannot be neglected.
• Given the nature of banking, i.e. high leverage
  operations and intermediating resources from the
  public, require from regulation and supervision
  to be ahead and not behind of financial
  innovation.