Banking Leaders Discuss Fobaproa Debt Review
Nuevo Vallarta, Nayarit.— In response to recent calls for reviewing the Fobaproa debt and public debt resulting from it, the Mexican Banking Association (ABM) acknowledged that a review could be conducted, but emphasized that the situation occurred over 30 years ago when regulations and the country’s circumstances were vastly different from today.
Potential Consequences of Stopping Fobaproa Debt Payments
Raúl Martínez-Ostos, ABM’s vice president, warned that ceasing Fobaproa debt payments would be extremely serious.
“If the IPAB debt payments were to stop, which is public debt, it would be extremely serious because it would consolidate with the federal government’s debt and result in a breach. This would send a highly negative signal to the market and all of Mexico’s creditors, both local and international, creating additional risk,” he explained.
He added, “Over time, just like all public debt, this debt is refinanced. It’s crucial to fulfill it, and precisely, that commitment signal has allowed Mexico to maintain its investment-grade rating and be considered one of the most solid credits among emerging markets.”
Preventing a Deeper Crisis
Eduardo Osuna, another ABM vice president, explained that the rescue back then was aimed at ensuring Mexican savers received their deposits.
“It was a rescue targeted at depositors to preserve the payments system, which was crucial in preventing a deeper crisis than the one we experienced; this rescue, by providing liquidity, enabled restructuring for the country’s productive system, benefiting both small and medium-sized enterprises, home loan debtors, and others, allowing a reasonable exit from the crisis,” he detailed.
He recalled that the situation was so severe that only four out of eighteen banks did not change ownership during the recapitalization process.
“And out of those four banks that didn’t change ownership, only one remained under the same ownership throughout the recapitalization process. I believe this is a rather exemplary process, considering what we’ve observed in other regions during cycles of change, where a failing payments system can trigger financial panics and deeper economic problems,” he pointed out.
He emphasized that as a result, Mexico now has a robust banking sector.
“Regulations are among the highest globally, meeting international market standards. The banking sector has been tested through recent cycle changes, including the 2008-2009 pandemic, and has emerged much stronger,” he stated.
Different Circumstances Back Then
Julio Carranza, ABM’s president, mentioned that the situation occurred over 30 years ago when regulations and the country’s circumstances were completely different.
“Back then, due to the lack of comprehensive regulation like we have today, banks were part of the problem. Now, with global regulations at the highest standards, we have a very strong, well-managed, and well-regulated banking sector that is part of the solution to the country’s current challenges, which I believe is most important,” he said.
He concluded that while reviewing past events is valid, focusing on the country’s ongoing progress is more beneficial.
Key Questions and Answers
- What is Fobaproa debt? It refers to the debt incurred during a financial rescue in Mexico over 30 years ago, aimed at protecting depositors and stabilizing the banking system.
- Why is reviewing Fobaproa debt relevant today? Although possible, it’s important to consider that regulations and the banking sector have evolved significantly since then.
- What were the consequences of not fulfilling Fobaproa debt obligations? Stopping payments would negatively impact Mexico’s credit rating and signal a breach of trust to both local and international creditors.
- How did the rescue prevent a deeper crisis? By ensuring depositors received their funds and providing liquidity to the productive system, the rescue helped stabilize the economy and enabled businesses and individuals to navigate through the crisis.
- Why is the current banking sector considered strong? Mexico’s banking sector benefits from robust regulations, meeting international market standards, and has proven resilience through recent economic challenges.
