MEXICO Law and Practice Contributed by: Pablo Perezalonso Eguía, Isabel Ortiz-Monasterio Borbolla and Alejandro Mosqueda Pérez, Ritch, Mueller y Nicolau, S.C.
Risk exposures are monitored regularly, and banks must submit risk reports to the CNBV, including data on large exposures, related-party lending, and sectoral concentrations. Capital Requirements and Buffers Mexican banks’ capitalisation requirements fol - low Basel III principles but are tailored for local conditions. • Minimum paid-in capital: 90 million UDIs (approximately USD36 million). • Legal reserves: Banks must allocate 10% of net income annually to reserves until they equal 100% of paid-in capital. • Capital composition: Aggregate net capital is divided into Core Equity Tier 1 (eg, paid- in capital, retained earnings, and reserves), Additional Tier 1 (eg, perpetual preferred shares and subordinated debt), and Tier 2 capital (eg, long-term subordinated debt with phased inclusion based on maturity). • Corrective measures: Non-compliance with capital ratios results in restrictions, such as dividend suspensions, bonus limits, or debt term adjustments. This framework ensures banks maintain robust loss-absorbing capacity while aligning with The amendments to the Banking Law also rein - forced liquidity measures. Banks must comply with the Liquidity Coverage Ratio (LCR) and maintain adequate liquidity buffers to meet short-term obligations. If a bank’s liquidity falls below mandated thresholds: • the CNBV may require a restoration plan, suspend certain operations, or impose opera - tional restrictions. international standards. Liquidity Requirements
Additionally, Banco de México supervises com - pliance with liquidity ratios to ensure resilience during market shocks. Systemically Important Banks Systemically important banks (SIBs) are subject to heightened regulations due to their potential impact on the financial system. Requirements include the following. • Additional capital buffers – SIBs must main - tain higher capital ratios. The supplementary capital is being phased in between 2022 and 2025. • Exposure limits – the CNBV imposes caps on exposures to interconnected counterparties to prevent excessive concentration risk. • Enhanced supervision – SIBs undergo more frequent and detailed regulatory reviews. Conclusion Mexico’s banking regulation aligns with interna - tional standards, ensuring robust capital adequa - cy, liquidity, and risk management frameworks. These measures enhance financial stability while allowing regulatory flexibility to address local market conditions. For systemically important institutions, stricter requirements ensure their resilience, safeguarding the broader economy. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework The Mexican banking system is governed by a robust legal and regulatory framework aimed at maintaining financial stability and protecting depositors. The key elements of this framework include licensing requirements, intervention mechanisms, resolution strategies, and specific insolvency rules.
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