Mexico: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management

International Monetary Fund

No 2022/338, IMF Staff Country Reports from International Monetary Fund

Abstract: Mexican money markets are well-regulated and function efficiently, with significant mitigants to systemic liquidity risks. This is supported by the dominance of the repo market in system-wide liquidity management, the marginal level of interbank unsecured transactions, as well as commercial banks’ full compliance with the Liquidity Coverage Ratio (LCR). However, development banks are not subject to liquidity regulation. These banks have development objectives and the sovereign backstops their capitalization and explicitly guarantees all of their liabilities, however, some of them have a significant reliance on short-term funding with low levels of unencumbered high-quality liquid assets. This might contribute to systemic liquidity risk during periods of extreme market stress in severe tail risk scenarios. Thus, the authorities could consider steps to strengthen the development banks’ liquidity risk management framework by improving the monitoring of their liquidity, leveraging their internal risk committees to take stock of their risk profile and contribution to systemic risk, making use of Pillar 2 requirements, and/or devising appropriate action(s) to improve these entities’ maturity transformation.

Keywords: development bank; Banco de México; standing liquidity; ELA framework; liquidity support; government bond bond market; Liquidity; Lender of last resort; Collateral; Commercial banks; Securities; Global (search for similar items in EconPapers)
Pages: 30
Date: 2022-11-10
New Economics Papers: this item is included in nep-fmk
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