Mexican Legal Framework of Business Insolvency - White & Case

PART IV
Administrative Resolution
of Banks 70
As a result of the 2008 – 2010 worldwide financial crisis, the issues surrounding bank
insolvency have taken on new speed. The situation is fluid and the legal framework can
change at any moment. For example, the Basel Committee on Banking Supervision recently
published many of the “Basel III” rules for the new global capital and liquidity standards for
banks, the United States recently passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act and Mexico is discussing a new bill of law to regulate the insolvency of banks
and other financial system firms.
21. Introduction
Bank insolvency merits a specifically devoted portion of this book due to the complexity
of its regulation. There is ample discussion on the importance of banks having a special
insolvency treatment. One of the exponents, Hüpkes (2003), devotes a whole paper to
the subject and sets forth the following reasons why banks should have a special
insolvency treatment: 71
Why should banks be accorded special treatment in insolvency? The common answer is
that banks play a special role in a country’s economy in that, collectively, their functions
are so important as to constitute a sort of public service. In order to justify this special
attention, reference is commonly made to three characteristic functions of banks:
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First, banks typically hold highly liquid liabilities in the form of deposits that are repayable at par
on demand. On the asset side, they generally hold long-term loans that may be difficult to sell or
borrow against on short notice. Under normal circumstances, this mismatch of maturity does not
pose a major problem: Whereas withdrawals are subject to the law of large numbers, loans will
be held until maturity and repaid at face value. A bank’s required capitalization covers the risk of
loan loss, and a cushion of liquid assets ensures its ability to cover withdrawals in normal times.
70 Mexican banks are either (1) commercial banks or (2) state-owned national development institutions [LIC 2].
Unless the context requires otherwise, reference herein to “banks” shall be deemed to be made to commercial
banks only. State-owned national development institutions are governed by the Banking Law and their respective
organic laws [LIC 30], and the resolution regime applicable thereunder could defer from the one applicable under
the Banking Law.
71
Hüpkes (2003), pp. 2-3 (footnotes omitted).