Financial Management of Commercial banks

How significant changes in the Mexican financial sector are impacting U.S.-Mexico business transactions.

Mexico is a key trading partner with the United States and a member of NAFTA, and as such, many U.S. businesses have significant dealings with Mexican suppliers, customers, or subsidiaries. As discussed in a previous article on commercial banking in the United States and Canada, one of the most important business relationships for a company is with the commercial bank they use for credit and non-credit services.

While there are some similarities in commercial banking practices, there are other, very significant differences between the Mexican and U.S. environments, for example, the prevalence of foreign-owned financial institutions, varying payroll delivery mechanisms, and anti-money laundering compliance levels. The purpose of this article is to articulate these differences and evaluate their impact on business transactions in the U.S. vis-a-vis Mexico.

The Mexican Banking Environment

Mexico has a very stable and well-capitalized banking system under the control and regulatory supervision of its Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico or SHCP). As a result of a period of privatization and consolidation in the early 2000s, the banks are primarily large, foreign-owned entities. There are currently 26 financial groups, 31 multiple banks, seven development banks, 42 financial companies with limited operations, and 81 representative offices of foreign banks.

The central bank of Mexico is known as Banco de Mexico (Banxico). It is responsible for the control of monetary policy and is the overall regulator of both financial services and payment systems. It is similar to the Federal Reserve in the United States as it is the lender of last resort to financial institutions and the provider of treasury services to the federal government. As mentioned above, the SHCP shares regulatory duties over the banking sector and is primarily responsible for the day-to-day supervision of banks operating in Mexico.

Currently, the Mexican peso (MXN) is a fully convertible, free-floating currency and there are no exchange controls. In addition, both local and foreign currency accounts are available to resident and non-resident entities. All non-resident entities are required to register any foreign currency accounts held in Mexico with the banking authorities. It is important to note that whether held by residents or non-residents, local currency accounts are not convertible into foreign currency. On a positive note, however, there are generally no lifting fees on transfers between resident and non-resident accounts.

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I sort of agree with you, but...

2010-02-01 12:50:13 by Point

Aggressive action by governments and central banks — really unprecedented in both magnitude and scope — has been necessary to revive and maintain market functions. Some of that support has continued to this day. Here in the United States as elsewhere, some of the largest and proudest financial institutions — including both investment and commercial banks — have been rescued or merged with the help of massive official funds. Those actions were taken out of well-justified concern that their outright failure would irreparably impair market functioning and further damage the real economy already in recession

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