Bank Accounting Standards in Mexico: A Layman’s Guide to Changes 10 Years after the 1995 Bank Crisis

by Gustavo A. Del Angel, Stephen Haber & Aldo Musacchio

Overview — Mexico was the first emerging market compelled to reformulate the financial reporting of its banks as a result of a financial crisis. In the last decade, Mexico has undergone a process of internationalization of its banking industry. Today, more than 80 percent of the equity of Mexican banks belongs to internationally active bank corporations. This internationalization demands more transparent regulation, including standardized accounting rules and better disclosure of information. The case of Mexico can therefore serve as an example of the relevance of these changes, as well as of their scope and limitations. This paper attempts to clarify the nature and structure of the new accounting standards, and explains how they have affected financial statements and their interpretation. Key concepts include:

  • Mexican bank accounting standards enjoyed special treatment during most of the 20th century because banking was an industry protected from foreign competition in a relatively closed economy.
  • More transparent bank accounts and stricter accounting processes in Mexico are especially crucial today, in light of the predominantly foreign ownership of the Mexican banking system.
  • The classification of financial operations still varies from country to country. National differences emerge despite the fact that financial instruments, products, and transactions are either very similar or the same worldwide.
  • Legal and regulatory stipulations, accounting history, tax structure, and local business practices create differences in the way financial transactions are recorded in the financial statements.

Author Abstract

After the 1995 crisis, the Mexican banking system experienced significant changes in bank accounting standards. Most of these changes took place between 1996 and 2001, and had a significant impact in the structure and interpretation of financial information of banks. This document explains the major changes on bank accounting, their purpose and structure, and discusses their impact on financial information reported by Mexican banks. It also provides the English equivalent of the major accounting terms used by Mexican banks. The main purpose of this document is to provide a standardized guide to better understand financial information produced before and after the crisis, within the current context of internationalization of Mexican banks' ownership.

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