VZCZCXRO8325
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #6256/01 3551853
ZNR UUUUU ZZH
P 211853Z DEC 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9997
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MEXICO 006256 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
USDOC FOR ITA (ISRALY ECHEGARAY) 
TREASURY FOR IA (ALICE FAIBISHENKO, ANNA JEWEL) 
TREASURY FOR OCC/IBF (SUSAN QUILL) 
TREASURY FOR IBSMO (WILBUR MONROE, BILL FOSTER) 
CFTC FOR OIA (WARREN GORLICK) 
NSC FOR RICHARD MILES, DAN FISK 
EXIM FOR MICHELE WILKINS 
SEC FOR OIA (SHAUNA STEELE) 
STATE PASS TO USTR (EISSENSTAT/MELLE/SHIGETOMI) 
STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO/ANN MISBACK) 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: NEW FINANCIAL SECTOR REFORMS IN MEXICO: A SMALL, 
BUT IMPORTANT STEP FORWARD 
 
REF: MEXICO 5567 
 
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Summary 
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¶1. (SBU) Mexico's Congress this month approved a series of 
financial sector reforms, which include creating specialized, 
"niche" banks and transferring some responsibilities from the 
Finance Secretariat to the Banking and Securities Commission 
(CNBV).  The reforms have been generally well received. 
While microfinance institutions were not the principal target 
of this reform package, the niche bank license is likely to 
be an attractive option for a number of them.  This should 
have the effect of encouraging more microfinance institutions 
to become regulated and offer savings, which should have a 
positive effect on competition in the financial sector, and 
on increasing access to safe savings services for low-income 
populations.  End Summary. 
 
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Key Components of the Reform Package 
------------------------------------ 
 
¶2. (SBU) Mexico's Congress this month approved a series of 
amendments to laws that govern the financial sector.  Perhaps 
the most important change is the creation of so-called 
"niche" banks -- banks that specialize in a particular 
operation or region of the country -- via the introduction of 
a differential bank license.  These institutions will only be 
required to comply with the regulations for the specific 
activities they perform, and minimum capital requirements 
will be lowered accordingly (see reftel for more 
information).  The reform package also transfers certain 
powers from the Secretariat of Finance (Hacienda) to the 
Banking and Securities Commission (CNBV).  Specifically, it 
transfers responsibilities regarding capital adequacy, credit 
provisioning, and all bank-related authorizations to the 
CNBV.  In addition, the CNBV gains the authority to issue 
some secondary regulations that had been Hacienda's 
responsibility; supervise outsourcing and, if needed, order 
the suspension of the services; and inspect and supervise 
external bank auditors. 
 
¶3. (SBU) The reform package also includes new rules regarding 
outsourcing and mergers and divisions; improves the corporate 
governance of banks; and specifies what activities or 
contracts businesses and people "related" to a bank can 
perform.  (Comment: the latter is particularly important 
because it was discovered during the bank bailout in the 
mid-1990s that banks had made loans that were never repaid to 
their owners, board members, and other people somehow related 
to the bank.  End Comment.)  The reform initiative also 
includes new and stricter requirements for those interested 
in operating a bank (including criminal record checks) and 
more transparent rules for development banks' boards of 
directors.  The reforms still have to be published in the 
Official Gazette to become law. 
 
----------------------------------- 
Niche Bank Option Attracts Interest 
----------------------------------- 
 
¶4. (SBU) The reform package offers a new alternative to 
small- and medium-sized microfinance institutions 
(institutions that offer financial services to small-scale 
business owners and lower-income families) that wish to 
become regulated and offer savings products.  Currently, 
 
MEXICO 00006256  002 OF 003 
 
 
non-bank microfinance institutions -- which are registered as 
either non-profit A.C.s (non-profit associations) or as 
for-profit SOFOLs or SOFOMs (limited purpose financial 
companies and multiple purpose financial companies, 
respectively) -- have two choices:  either continue with 
their current status, under which they are not authorized to 
collect savings from their clients; or transform to a 
"popular finance society" (SOFIPO) that is so authorized. 
Conversations with several of these institutions show that 
the niche bank license is seen as an attractive third option, 
allowing savings mobilization but avoiding the complications 
associated with becoming a SOFIPO.  As an example, SOFIPOs 
are required to participate in and pay for an "auxiliary 
supervision" scheme. 
 
¶5. (SBU) The niche bank option seems to be most attractive to 
those institutions that are large enough to meet the minimum 
capital requirement for the niche bank, but too small to 
qualify for a universal bank license.  Smaller institutions 
will either remain non-profit A.C.s, or decide to become 
SOFIPOs (given the lower minimum capital requirements). 
Larger institutions will opt for full banking licenses -- 
such as Banco Compartamos, a microfinance institution with 
more than 600,000 clients that obtained its full banking 
license in 2006. 
 
----------------------- 
Reaction to the Reforms 
----------------------- 
 
¶6. (SBU) Response to the reform package has been generally 
positive.  A BBVA Bancomer executive told econoff and 
visiting Treasury officials that his bank supports the new 
banking sector reforms.  He believes the differential bank 
license will foster more open competition in the sector. 
Banking experts at Moody's de Mexico agreed that the reforms 
were positive, noting that they will lead to more lending to 
small- and medium-sized enterprises (SMEs) -- something that 
is much needed in Mexico. 
 
¶7. (SBU) The BBVA Bancomer official, however, added that both 
Bancomer and the Mexican Banking Association want to make 
sure that the reforms do not create an unfair competitive 
advantage for the new banks.  They are particularly concerned 
with banks associated with retail stores, such as Wal-Mart. 
(Note: Wal-Mart does not have a differential banking license, 
rather a full license.  End note.)  The Bancomer official 
added that the retailers would have a significant competitive 
advantage if regulators allow them to accept deposits at cash 
registers, due to their large network of stores throughout 
Mexico.  Bancomer noted that it costs them around USD 10 
million to establish a branch with only five or six tellers. 
In addition, Bancomer stated that it is important that 
regulators do not let the potentially poor lending practices 
of niche banks affect the banking system at large.  (Comment: 
 Moody's said that the Bank of Mexico will not allow Wal-Mart 
to have cashiers accept deposits.  Instead, Wal-Mart will 
open bank branches inside existing stores.  End comment.) 
 
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Comment 
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¶8. (SBU) While microfinance institutions were not the 
principal target of this reform package, the niche bank 
license is likely to be an attractive option for a number of 
them.  This should have the effect of encouraging more 
microfinance institutions to become regulated and offer 
 
MEXICO 00006256  003 OF 003 
 
 
savings, which should have a positive effect on competition 
in the financial sector, and on increasing access to safe 
savings services for low-income populations.  Measures that 
increase penetration of the banking sector are welcome. 
Financial intermediation levels are extremely low in Mexico, 
even by Latin American standards.  Banks have successfully 
banked the top strata of the pyramid, but now need to move 
downstream to service the lower income segments of the 
population.  End Comment. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT