It is known that the banking system is the means where the savings generated in the economy can be channeled to "deficit" agents such as individuals (who finance their consumption), companies (finance the operation and their investments) or the government (to cover part of its fiscal deficit). So it can be said that the efficiency of the banking sector is a crucial part for economic development; Because without bank financing or with extremely high intermediation margins, it is very difficult for there to be sustained growth.
For a banking system to operate properly, three factors are necessary:
- Respect for the property of individuals Economic stability that allows planning of spending and investment by individuals A regulatory and supervisory framework that promotes the efficient allocation of financial resources
Based on the aforementioned points, we can say that the main objective of banking regulation and supervision is to avoid a crisis in the economy's payment system. Therefore, supervision must be focused on the allocation of financial assets, the capital required to guarantee the solvency of the institutions and the constitution of reserves that cover the risks that each bank may incur.
However, due to the 1995 crisis, problems became evident in these three points, which affected the country's productive activity.
This crisis emphasized the problems in preventive regulation and supervision, and attention to bank failures. Therefore, it motivated reforms to the regulation and supervision of financial activity. For example, the amendments to the "Law on Credit Institutions" and the issuance of the "Law for the Protection of Bank Savings."
But on September 15, 2008, the bankruptcy of Lehman Brothers, which was one of the largest investment banks in the world, triggered the greatest crisis in recent decades and was a sign of the lack of regulation in the world. financial sector to face risks related to the economy and industry.
Such was the international “contagion” caused by this crisis that the financial authorities of the main economies were forced to design stricter regulatory measures to avoid, or in the worst case, face problems of this type.
In the case of Mexico, the national banking regulation has sought to adopt the best international practices since the emergence of the Basel accords.
Development.
The international financial crisis that broke out in the United States in 2008 made evident the lack of an efficient regulatory scheme in governments to prevent the bankruptcy of financial institutions. International organizations such as the Financial Stability Council and the Basel Committee, came to establish measures to avoid this type of disaster, this is how "contingency plans" come to be.
Contingency plans are a very important tool for financial institutions, because in them multiple banking entities establish underlying actions and processes that seek to restore their financial situation when there are capitalization, liquidity or solvency problems.
Therefore, financial authorities such as the IPAB (Institute for the Protection of Bank Savings), take into account what is reflected in the contingency plans when the resolution plans are being prepared.
It should be clarified that contingency and resolution plans are differentiated by the execution time, severity and actions that are implemented.
Now, if the actions that come in the contingency plans cannot provide an adequate solution to the problems of the banking entities, the authorities must take the necessary measures to exit the financial market without affecting the value of the assets or to the public.
Contingency plans must be approved by the institutions' board of directors and sent to the CNBV (National Banking and Securities Commission) for approval.
What should be considered is the following:
- Approval policies Internal and external communication plans in the case of their execution Active participation of different units and officials of the banking institution Description of the essential business lines, legal entities that are important for the operation of the institutions and of the critical functions that could cause adverse effects on other financial entities Qualitative and quantitative indicators related to the main business lines Show that the actions to be implemented are feasible.
Similarly, stress tests must be applied periodically to the contingency plan in order to design them properly. There are other countries where it is mandatory to carry out this type of test. In the specific case of Mexico, this requirement was also included, first with the so-called supervisory scenarios and later with the publication of the minimum regulatory requirements that must be met, in order to carry out the stress tests. Financial institutions carry out two to four scenarios and with the results a better financial projection is obtained.
But it can be said that the doubt still remains, if the banks are really achieving something by applying these scenarios. To clarify this doubt it is necessary to mention certain differences. First, is that the entities of other countries have already adopted internal models, which are methodologies for calculating reserves from databases of operations, applying statistical measures. Although banking regulation tries to adhere to international practices, the reality is that in Mexico many banks still follow a standard methodology and few have evolved to the internal one, as it is optional.
Other types of risks in addition to the traditional ones are also evaluated, such as those that may affect only a specific bank, such as strategic risk, environmental risks or insecurity risks.
Conclusions.
It is important to point out the importance of having a dynamic regulation that adapts to the changing technology and needs of the population. Therefore, the fact that banking institutions remain in standard models, it is not possible to make a more accurate risk measurement. Therefore, for CNBV the task of supervising will be a great challenge to evaluate the scenarios and contingency plans, seeking to take into account all possible risks for the banking entity.
References.
- (2018, September 18). How to create a financial contingency plan. Retrieved October 22, 2018, from https://www.eleconomista.com.mx/finanzaspersonales/Como-crear-un-plan-de-contingencia-financiera-20180917-0076.html(2015). BBVA digital annual report in 2015. Retrieved October 22, 2018, from https://accionistaseinversores.bbva.com/microsites/bbvain2015/es/gobierno-corporativo/modelo-de-control-interno/(2009, February 16). The 1994-95 crisis and the current crisis. Retrieved October 22, 2018, from https://expansion.mx/economia/2009/01/30/la-crisis-del-199495-y-la-actual-crisis(nd). Stress tests. Retrieved October 22, 2018, from https://portafoliodeinformacion.cnbv.gob.mx/bm1/Paginas/pruebas-estres.aspx(2018, October 11). Who regulates the financial system of Mexico? Retrieved October 22, 2018, from https: //www.rankia.mx / blog / best-certificates-deposit / 1845552-who-regulates-financial-system-mexicoRomán, R. (2017, October 07). CNBV prepares stress tests for brokerage houses. Retrieved October 22, 2018, from https://www.eleconomista.com.mx/mercados/Prepara-CNBV-pruebas-de-estres-para-casas-de-Bolsa-20150902-0165.htmlStaff, F. (2013, April 24). Banking regulation, key to growth: CNBV • Forbes México. Retrieved October 22, 2018, from https://www.forbes.com.mx/regulacion-financiera-fundamento-para-el-crecimiento/Valle, JI (2017, November 17). Banking regulation in Mexico - Financial Services. Retrieved October 22, 2018, from https://www2.deloitte.com/mx/es/pages/financial-services/articles/regulacion-bancaria-mx.htmlZepeda, C. (2018, September 14). 10 lessons from the Lehman Brothers bankruptcy. Retrieved October 22, 2018, from
