Jesús Elizondo
Director General of Financial Systems Affairs
Banco de México (Banxico)
View from the Top

Ensuring the Economy's Financial Stability

Tue, 11/01/2016 - 15:16

Q: What is Banxico’s role in regulating the financial system?

A: Banxico has various functions in addition to monetary policy, such as issuing currency and regulating the payment and financial systems. These functions are couched within the general objective and obligation to watch over the healthy development of the financial system. Banxico’s policies and other regulatory laws allow us to reach that objective. Institutionally, we have interpreted healthy development as offering the system trustworthiness, stability, higher competency and increased accessibility. To achieve these objectives, we work with the National Banking and Securities Commission (CNBV), the National Commission for the Retirement Savings System (CONSAR), the National Commission for the Protection and Defense of Financial Service Users (CONDUSEF) and the National Commission for Assurance and Finance (CNSF). We also participate in their governmental meetings. Banxico carries out stress tests and performs improvements accordingly to ensure financial stability. This began in 2009 and occurs once a year. The tests show the resistance of the system to diverse external scenarios. In addition, every five years we are visited by international authorities such as the IMF or the World Bank to test the system. We have learned a great deal since the 2008 crash and we have tested shocks of a large magnitude.

Q: What steps can be taken to ensure transparency?

A: There are two ways to make the system trustworthy. The first is for entities that operate the system to maintain high security standards in management, meaning that people will be confident their deposits will not disappear. There is a line of financial regulation to this end through which we ensure entities have enough capital, reserves, liquidity and that their financing sources are congruent with the lines of credit they are extending. The second way to increase trustworthiness is through user protection. When a product is offered, it needs to be offered with transparency.

Q: What measures do you take to ensure protection against a potential repeat of the 2008 financial crash?

A: Institutions are not generally concerned with the stability of the system as long as the system continues to operate in the customary manner and operations are not abruptly interrupted. This became extremely relevant after the 2008 crash because there was previously no integral version of the system. With this, platforms share intermediaries to operate, as do connection platforms for credit cards, the credit bureau, compensation chambers and payment systems. For this reason there is regulation and vigilance over practices like contingency plans and the mitigation of accumulated risk.

Q: How do you ensure the system’s competency and inclusivity for all users?

A: Overseeing competency in the system is another highly relevant objective, the success of which promotes a better offering for users. Exit barriers are a challenge to this objective because users cannot change service providers. Laws give us the ability to regulate and avoid these limits that tie people to a product and they allow us to regulate published information so users can compare services to choose the most suitable from the outset. We also verify the entry of new banks is not restricted when they bring innovation or new development that represents improvement to the system. Finally, inclusivity of financial services implies they are accessible, that they are used and people are adequately familiar with their processes. Banks must disclose the risks they take and through this political objective we want to ensure people are not marginalized for reasons such as the lack of infrastructure or inadequate risk selection. As a result, we have advocated that ATMs or bank branches reach even the farthest and most remote locations, whether that be domestically or abroad. The services offered have diversified with the entry of foreign banks into the market. Mortgage loans with distinct particularities like in Canada offer a variable rate for the first five years and afterward a fixed rate, which makes it more affordable. The population has access to more diverse services, intensifying competition in the system.