A New Model for Market-Based Regulation of Subnational Borrowing The Mexican Approach
A New Model for Market-Based Regulation of Subnational Borrowing: The Mexican Approach

July 2000 - To bring fiscal discipline to state and municipal governments, Mexico's federal government has established a two-pillar framework that explicitly renounces federal bail-outs and establishes a Basel-consistent link between the capital-risk weighting of bank loans to subnational gover...

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Bibliographische Detailangaben
1. Verfasser: Giugale, Marcelo (VerfasserIn)
Format: Elektronisch E-Book
Sprache:English
Veröffentlicht: Washington, D.C The World Bank 1999
Schlagworte:
Bank
Banks
Banks and Banking Reform
Borrowing
Capital
Commercial Banks
Cred Debt
Debt Markets
Decentralization
Deposits
Economic Theory and Research
Emerging Markets
Externalities
Finance and Financial Sector Development
Financial Intermediation
Financial Literacy
Financial Performance
Governments
Institutional Development
Interest
Interest Rates
Lending
Loans
Macroeconomic Stability
Macroeconomics and Economic Growth
Moral Hazard
Private Sector Development
Risk
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Zusammenfassung:July 2000 - To bring fiscal discipline to state and municipal governments, Mexico's federal government has established a two-pillar framework that explicitly renounces federal bail-outs and establishes a Basel-consistent link between the capital-risk weighting of bank loans to subnational governments and the borrower's credit rating. Whether the framework succeeds will depend partly on market assessments of the government's commitment to enforce bank capital rules and refrain from bailing out defaulting subnational governments. Faced with weak subnational finances that pose a risk to macroeconomic stability, Mexico's federal government in April 2000 established an innovative incentive framework to bring fiscal discipline to state and municipal governments. That framework is based on two pillars: an explicit renunciation of federal bail-outs and a Basel-consistent link between the capital-risk weighting of bank loans to subnational governments and the borrower's credit rating. In theory, this new regulatory arrangement should reduce moral hazard among banks and their state and municipal clients; differentiate interest rates on the basis of the borrowers' creditworthiness; and elicit a strong demand for institutional development at the subnational level. But its success will depend on three factors critical to implementation: · Whether markets find the federal commitment not to bail out defaulting subnational governments credible. · Whether subnational governments have access to financing other than bank loans. · How well bank capital rules are enforced. This paper - a product of the Mexico- Country Department and Poverty Reduction and Economic Management Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to understand the subnational underpinnings of sustainable, national economic framework.
[Fortsetzung 1. Abstract] The authors may be contacted at mgiugale@worldbank.org, akorobow@worldbank.org, or swebb@worldbank.org
Beschreibung:Weitere Ausgabe: Giugale, Marcelo: A New Model for Market-Based Regulation of Subnational Borrowing
Beschreibung:1 Online-Ressource (1 online resource (30 p.))
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