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Table of Contents
I. Overview DIS in MexicoII. Regular activities
III. Pre-closing
IV. Paying insured depositorsV. Automation in paying insured deposits
VI. Customer communication
VII.Addressing uninsured depositors andgeneral creditors
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I. Overview DIS in Mexico
The Mexican Deposit Insurance Systems (DIS) legislation has
undergone a series of key improvements in order tostrengthen its regulatory framework (2004-until now), which
include:
Prompt Corrective Actions - on December 2004, the
supervisor issued rules to classify commercial banks incategories based on their Capital Adequacy Ratio
(Spanish acronym ICAP), in order to perform early
detection, intervention and resolution of troubled banks.
Resolution methods - on July 2006, the legislation was
enhanced to include other resolution methods in order to
improve the DIS resolution framework.
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Resolution methods
Resolution methods for bank liquidation:
Deposit payoff.
Purchase and assumption transaction (P&A).
Bridge bank.
Open Bank Assistance - when the Financial Stability
Committee determines that a commercial bank represents a
systemic risk.
Banking Resolutions Law - currently the Financial Safety Netis working on a regulatory reform in order to develop a specific
and more efficient bank-bankruptcy resolution mechanism.
DIS determines the least cost resolution method by evaluating allpossible resolution alternatives based on a technical analysis.
I. Overview DIS in Mexico
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As of June 30, 2009, the Mexican banking sector was made up of 42commercial banks.
The Institute for the Protection of Banking Savings (IPAB) is the agency
in charge of the DIS in Mexico, responsible for protecting bank deposits
and providing an explicit and limited coverage.
IPAB is also responsible for bank resolution methodsimplementation.
Coverage protects insured depositors (i.e. a person or entity that
deposit funds) of commercial banking institutions (institutions).
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Covered financial products (insured deposits)1_/ include:
Savings accounts;
Sight deposits, such as checking accounts;
Time deposits or with advanced notice of withdrawal,
such as certificates of deposit;
Deposits that could be withdrawn on established dates,and
Balances on debit cards.
Since January 1st, 2005, deposits are covered up to 400
thousand investment units (UDIS)2_/ equivalent to approx. USD
$128,900 per natural or legal person per bank.
1_/As mentioned on Article 46, Items I and II of the Law of Credit Institutions (Spanish acronym LIC).2_/UDIS are inflation adjusted units of account. As of June 30, 2009, one UDI is equivalent to 4.249858
Mexican Pesos.
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Bank operations1_/ payable to the following persons are excludedfrom the coverage scheme:
Domestic or foreign financial entities.
Corporations owned by the same financial group as the bank.
Shareholders, board members, and officers at the two highest levelsin the banks organization.
Also, IPAB does not guarantee the following operations:
Operations that have not fulfilled the applicable legal andadministrative provisions.
Operations that deviate from sound banking practices.
Liabilities documented in negotiable instruments, as well as bearersecurities.
IPAB does not guarantee investments made through the followinginstitutions:
Thrift Institutions
Savings and Loans
Insurers
Brokerage Firms
Development Banks
1_/As mentioned on Article 10 of LPAB.
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As of June 30th, the balance of fully insured deposits by
IPAB was USD $84,072 millions, which represent 25.55% of
the commercial banking sectors total liabilities and 10% of
the nominal GDP as of 2009Q2.
IPAB covers, approximately, 99.84% of the 72,061,713
insured accounts, which represent USD $139,228
millions.
Only 0.16% are accounts that exceed the coverage limit.
96.57% of the insured accounts are sight deposit accounts,while 3.43% are time deposits.
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Insured deposits (deposits covered): Savings, checking and other deposits as mentioned on
Article 46 of the LIC.
Fully insured deposits (deposit fully covered): Insured deposits covered up to IPABs insurancecoverage limit (400,000 UDIS).
Insured accounts (number of accounts covered): Savings, checking and other deposit accountsas mentioned on Article 46 of the LIC.
Fully insured accounts (number of accounts fully covered): Insured accounts that are
covered up to IPABs insurance coverage limit.
Partially insured accounts (number of account partially covered):
Accounts that exceed IPABs insurance coverage limit.
Concept June 09 1_/
Insured Accounts 72,061,713
Fully Insured Accounts 71,946,133
% of Insured Accounts 99.84%Partially Insurance Accounts 115,580
% of Insured Accounts 0.16%
Balances of Insurance Deposits (ID) 2_/ 139,229
Balances of Fully Insurance Deposits (FID) 2_/ 84,072
Balances of Deposits not Covered 2_/ 55,156
Balance of Total Liabilities 329,012
FID as % of ID 60.38%
FID as % of Total Liabilities 25.55%
FID as % of GDP 10.00%
Nominal GDP 3_/ 841,140
Current Coverage Level (in USD) 4_/ 128,6411_/ Preliminary f igures. Sources:CNBV and Banxico.2_/ Figures in millions of USD
4_/ Considering the UDI value as of June 30, 2009 of $4.245898 Mexican pesos.
3_/ Estimated current GDP of MXP $11,104.979 millions as of second quarter 2009,
according to The Ministry of Finance and Public Credit (SHCP).
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II. Regular activities
IPAB conducts regular activities for monitoring insured deposits in order tobe prepared to pay depositors when a bank face financial problems.
While the National Banking and Securities Commission (Spanish acronym,CNBV) is responsible of supervising banks, IPAB monitors the financialstatus and performance of institutions and oversees insured depositsperformance for determining its risk exposure as deposit insurer.
The mechanisms used by IPAB to carry out the monitoring are:
1. Insured Deposits Quarterly Report
IPAB generates an Insured Deposits Quarterly Report (Report), whichaims at monitoring the covered depositsperformance of institutions inMexico, providing data for analysis in case an insured institution fails.
The Reports financial information is obtained primarily from two sources:
Data regarding insured deposits - from the Financial Information Office ofBanco de Mexico (Mexican central bank), and
Data regarding total liabilities of institutions retrieved from the CNBV.
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2. Inspection Visits1_/
On 2008, IPAB established insured depositsclassification rulesin order to identify information regarding depositors, insureddeposits, as well as joint accounts.
IPAB performs inspection visits to verify information regarding
insured deposits to improve the informations quality in theinstitutionssystems, as well as to gather relevant data in casean institution fails.
In order to accomplish such visits and to comply with theclassification rules, IPAB has developed the DepositInsurance Monitoring System (Spanish acronym, MOG)
that allows the DIS to identify relevant information regardinginsured depositors of institutions.
1_/
Inspection visits are conducted by the supervisor authority based on a Memorandum of Understanding(MOU) among IPAB and CNBV.
II. Regular activities
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MOG - Deposit Insurance Monitoring SystemOverview (1/2)
System developed by IPAB in order to verify (validate)institutions compliance regarding the classification ofinsured deposits.
During ordinary times, such validation is carried outconsidering a representative sample of insured accounts
and insured deposits of a certain institution. MOG allows IPAB to verify the informations consistency, as
well as to validate:
Complete information regarding depositors.
If an insured depositor has more than one account within thesame institution, the MOG matches accounts with depositors
in order to reimburse up to the coverage limit.
Uninsured deposits or deposits that are excluded from thescope of coverage of the DIS.
Accrued interests of accounts as of a specific date.
II. Regular activities
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MOG - Deposit Insurance Monitoring SystemOverview (2/2)
MOG generates a report about informations
inconsistencies.
If inspection visits are performed on a regular basis,
inconsistencies regarding insured accounts data arereduced.
Therefore, this information becomes more reliable in
the event of a deposit payoff.
IPAB makes a follow up of the improvements regardingthe quality of the information.
II. Regular activities
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III. Pre-closing activities
When IPAB determines the deposit payoff as resolution
method, it uses the total number of accounts included inthe MOG (universe) instead of a single sample, in order toinitiate the depositorsreimbursement process.
Additionally, IPAB has a system to manage the depositorsreimbursement process for each client using, as input, the
information generated by the MOG.
During this process stage, IPAB develops thereimbursement process that will be published.
In order to carry out the depositors reimbursementprocess, IPAB determines critical resources, such ashuman, financial and technical.
IPAB determines the funding mechanisms.
IPAB determines the customer communication strategy.
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IPAB carries out the insured depositors reimbursement
process as liquidator or receiver, once the banking supervisorhas revoked1_/ the institutions operating license and the
IPABs Governing Board has determined the resolution
method, based on the least cost rule.
IPABs resolution methods for bank liquidations are:
Deposit Payoff.
Purchase and Assumption Transactions (P&A).
Bridge Bank.
The Deposit Payoff corresponds to the insured deposits
reimbursement up to 400,000 UDIS2_/ as stated in Law.
1_/As mentioned on Article 28, Items I, II or III of the LIC.
2_/UDIS are inflation adjusted units of account. As of June 30, 2009, one UDI is equivalent to 4.249858 Mexican Pesos.
IV. Paying insured depositors
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The Mexican legislation determines up to 95 days from the timethe bank supervisor revokes the institutions operating license, for
executing the depositorsreimbursement process.
1 year5 days
IPABs role as Liquidator or Receiver
0d 65d 95d5d5 days 65 days 95 days0 days
Publication of the Reimbursement Process
Submission of the Claims Reimbursement Form
Payment of Insured Deposits
Deadline for legal actions
Automation
IV. Paying insured depositors
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1 year5 days
IPABs role as Liquidator or Receiver
0d 65d 95d5d5 days 65 days 95 days0 days
Once the institutions operating license is revoked,IPABs Governing Board appoints IPAB as receiver.
IPAB determines the depositors reimbursementprocess, which includes:
Terms and requirements of the claims reimbursement form.
Information requirements attached to the reimbursement form.
Terms and places for distribution-reception of the claim's form.
Claims reimbursement form validation.
Means for clarification and consultation of the claim's status.
Time schedule and places to reimburse depositors.
IV. Paying insured depositors
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1 year5 days
0d 65d 95d5d5 days 65 days 95 days0 days
Publication of the Reimbursement Process
Depositors reimbursement process is publishedon:
The Official Gazette;
Two nationwide daily newspapers, and
Other media that IPAB considers appropriate.
The reimbursement process will be published
within five business days after IPAB carries outthe institutions liquidation.
Between 0 and 5 days
IV. Paying insured depositors
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1 year5 days
0d 65d 95d5d5 days 65 days 95 days0 days
Submission of the Claims Reimbursement Form
Only insured depositors, individually, must submit theclaims reimbursement form, with the following:
Copies of contracts. Account statements.
Other documents that demonstrate the insured depositsownership.
The claims reimbursement form must be submitted
according to the terms mentioned in the Payment Processpublished by IPAB.
Between 5 and 60 days
IV. Paying insured depositors
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1 year5 days
0d 65d 95d5d5 days 65 days 95 days0 days
Payment of Insured Deposits
After the Payment Process publications date, IPAB
will have 90 days to carry out the payment.
IPAB will pay the balance of principal and accessories
of insured deposits, up to 400,000 UDIS.1_/
Payment of insured deposits will be made in Mexican
currency. The amount denominated in UDIS will be
adjusted using the present value of the UDI as of theday IPAB executes the payment.
Between 5 and 90 days
1_/ UDIS are inflation adjusted units of account. As of June 30, 2009, one UDI is equivalent to 4.249858
Mexican Pesos.
IV. Paying insured depositors
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1 year5 days
0d 65d 95d5d5 days 65 days 95 days0 days
Deadline for legal actions
No legal action may be exercised against resolutionsissued by IPAB regarding payment of insured
deposits, unless the claims reimbursement form issubmitted within 12 months after the publication ofthe payments procedure.
Depositors that have not submitted such form within
the aforementioned term, will maintain all their rightsin relation with the institution, which they mayexercise through the appropriate judiciary channels.
IV. Paying insured depositors
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V. Automation in paying insureddeposits
The reimbursement process main elements are describedbelow:
Accountingand
OperationalClosure
Initial ETL1_/ClaimsReception
PaymentsCertification
Payment
Publication of theReimbursement Process
1_/ETL = Extract, Transform and Load institutions databases.
ContingentActivities
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Activities preceding the initial ETL are performed usinginformation generated by MOG.
This information is uploaded to the Claims ManagementReimbursement Process System (Spanish acronym,SOG), in order to optimize depositors reimbursementprocess.
This process is executed before the publication of thereimbursement process.
Initial ETLClaims
Reception
Payments
CertificationPayment
V. Automation in paying insureddeposits
Accountingand Operational
Closure
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Input: Banks information;
Three main input files: Depositor, Accounts and Depositor-Account matching;
Features:
Accountsprojected balances on future dates;
Uninsured deposits or special conditions marks.
Report rejections and clarifications (warnings and errors).
Files used as an input for the SOG.
Deposit Insurance Monitoring Systems (MOG)Description
Initial ETLClaims
Reception
Payments
CertificationPayment
V. Automation in paying insureddeposits
Accountingand Operational
Closure
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Deposit Insurance Monitoring Systems (MOG)Description (Information flow)
Layout 1.
Personal info
Layout 2.
Account info
Layout 3.
Relational data
Data loading- Layouts loading into MOG database (applying layoutspecifications)
- Validation Stage
Date and filename
Structure
Data types
Field length
Catalogs
Customer
Data
DepositData
Banks
systems
Financial
Statement
per person, perinstitution
Accountingand Operational
Closure
Initial ETLClaims
Reception
Payments
Certification
Payment
Input for theClaims
ManagementSystem (SOG)
V. Automation in paying insureddeposits
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Are fully automated under a WEB-based environment (Intranet
/ Internet). Consolidate all individual accounts held by a single client.
Perform a pro-rata separation of joint accounts.
Convert account balances to UDIS.
Report rejections and clarifications.
Perform automated checks issuance and wire transfers.
Register comments made during file review in each step.
Control of files sent and received in each processstep.
Issue deviation reports.
Publish claim status via Internet.
Accountingand Operational
Closure
Initial ETLClaims
Reception
Payments
Certification
Payment
Claims Managements Description (SOG)(Reimbursement Process)
V. Automation in paying insureddeposits
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Suspension of activities regarding institutions liabilities
(accounting, operational and informative).
Depositors financial statements are generated (SOG) as of the
day IPAB publishes the reimbursement process. Based on institutions data, IPAB determines the amount of
insured deposits payable to each depositor in UDIS.
Accounting and Operational Closure
IPAB, through the failed institution, distributes the claims
reimbursement forms to depositors. Through the SOG, IPAB validates the information provided by
each depositor.
If the information provided is accurate and the insured deposits
do not exceed the coverage limit, IPAB reimburses depositors.
Claims Reception
Accountingand Operational
ClosureInitial ETL
Claims
Reception
Payments
CertificationPayment
V. Automation in paying insureddeposits
i i i i d
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ContingentActivities
Accountingand Operational
Closure
Initial ETLClaims
Reception
Payments
certification
Unregistered liabilitiesanalysis
Exceptional cases where:Titular and/or account in the SOG do not exist.
Balances in the SOG do not match.Depositor's name and ID do not match.
Legal Review (external specialist's participation isexpected)
Analysis of claims forms with discrepancies between the information andthe SOG
Ownership.Depositor's identification
Exceptions review based on the legislation or special requests analysis:Legal representation.More than one depositor for an identical account.Verification of the beneficiarys authenticity.Allocation percentage.
Missing information.
V. Automation in paying insureddeposits
Payment
i i i i d
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Accountingand Operational
Closure
Initial ETLClaims
Reception
Payments
certificationPayment
The Bank's internal audit area validates payment's
procedures compliance.
IPAB executes the internal process and activities to make
the corresponding payment. Execution of the payment via the method chosen by the
depositor in the claims reimbursement form (checks, wire
transfer, etc.).
Payments Certification
Payment
V. Automation in paying insureddeposits
C i i
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VI. Customer communication
The Financial Safety Net is currently developing a public
awareness and financial education program.
Institutions have also made efforts to inform customersabout the financial products covered by IPAB (flyers, radio-spots and information print on account statements).
Through a wide range of communication mechanisms (i.e.press interviews, press releases, etc.), IPAB keeps mediaand depositors informed about insured institutions, insureddeposits and relevant information regarding the DIS.
In the event of a bank failure, IPAB would keep depositors
informed about their insured deposits, as well as the termsand general characteristics of the reimbursement process.
VI C i i
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The reimbursement process is published on:
The Official Gazette;
Two nationwide daily newspapers, and
Other media that IPAB considers appropriate.
Additionally, the reimbursement process will be published
within five business days after IPAB carries out theinstitutions liquidation/bankruptcy.
VI. Customer communication
VII Add i i d
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VII. Addressing uninsureddepositors and general creditors
Uninsured banks liabilities include:
Insured deposits that exceed the coverage limit.
Banks liabilities such as uninsured deposits, suppliers,creditors, subordinated debt, etc.
Difference of banks liabilities, when the Financial StabilityCommittee determines the payment of part of the insured
deposits. Claims against failed institutions occur when bills sent to
the institution remain unpaid at the time of failure. Suchclaims must be filed against the failed institution accordingto the priority of claims stated in the legislation1_/ once theresolution process is over.
If there is any excess cash generated by the disposition ofassets and the obligations of the receivership, it must bedistributed among stockholders.
1_/As mentioned on Article 122 Bis 24 of the LIC.