Mexican Legal Framework of Business Insolvency - White & Case

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If, however, something happens to disturb confidence in the bank’s ability to meet its payment
obligations, massive withdrawals of deposits risk causing liquidity problems and may threaten the
bank’s solvency.
Second, banks perform financial services that are fundamental to the functioning of an economy,
such as the extension of credit, the taking of deposits and the processing of payments. Despite
the complementary role of capital markets in the credit intermediation process and their capacity
to mobilize capital, banks remain the primary source of liquidity for most financial and non-financial
institutions. They provide direct and standby sources of credit and liquidity to the economy of a
country, either by supplying money in the form of loans or by providing guarantees in the form of
loan commitments.
Third, banks constitute the transmission belt for monetary policy, that is, the linkage between the
monetary policy process and the economy.
22. Three Pillars
There are three pillars in a bank insolvency: (1) protection of interests of depositors;
(2) soundness of the payment system; and (3) prevention of systemic risk. Oftentimes
these three pillars are in conflict with each other and require compromises from lawmakers
and regulators.
The legal framework for bank insolvency goes beyond the rules of administrative resolution
and includes preventive and remedial tools. Preventive tools are directed to prevent a bank
from insolvency and include capitalization requirements (cfr. 24), asset allocation and risk
management rules, deposit insurance and payment systems rules (cfr. 15.p). It is beyond
the scope of this book to address these measures. Remedial tools are those directed to
resolving the case of a bank that encounters insolvency, and these are addressed in this part
of the book.
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