Regulator: New solvency rules won't affect banks

Mexican banks should have no difficulty meeting new solvency rules proposed by the The Basel Committee, which are due to be implemented worldwide between 2004 and 2006, banking regulator CNBV chairman Jonathan Davis told local daily El Financiero in an interview. "Mexico has made a lot of important advances in the assimilation of new international capital guidelines," Davis said. Mexico's banking industry was turned on its head by the 1995 Tequila Crisis, which caused dozens of banks to go under or into government receivership. An improved regulatory framework and greater foreign participation in the local banking industry has strengthened the country's financial system in the years following the crisis. The CNBV is currently mulling a proposal to increase reserve requirements. "We are studying the convenience of asking the banks to constitute capital [reserves] for the risks derived from adverse economic cycles," Davis said. The Basel Committee, founded by the central bank governors of 10 countries in 1974, formulates supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authorities will take steps to implement them. In June 1999, the Committee issued a proposal for a New Capital Adequacy Framework to replace the 1988 Basel Capital Accord. The proposed capital framework has three main points: minimum capital requirements, which seek to refine the standardized rules set forth in the 1988 Accord; supervisory review of an institution's internal assessment process and capital adequacy; and effective use of disclosure to strengthen market discipline as a complement to supervisory efforts. Following extensive interaction with banks and industry groups, a final consultative document, taking into account comments and incorporating further work performed by the committee, was issued in April 2003, with a view to introducing the new framework at end-2006. In related news, the CNBV along with insurance regulator CNSF and pension fund authority Consar are working on a regulatory scheme that would allow for better control of financial groups operating in different segments of the financial system. "Supervision will be orientated towards risk areas, the evaluation process and identification and cover of risks," Davis said.