By Robert Damon

The Mexican banking system has sufficient strength and reliability to meet even before the official deadline, with the new capital requirements, better known as Basel III.

The Vice President of Regulatory Policy of the National Banking and Securities Commission (CNBV), Carlos Serrano, said the goal is that Mexican banks implement the new regulations from the second half of 2012, ie 2.6 years ahead of schedule of the Committee on Banking Supervision.

It was emphasized that all banks meet the system because they had taken some action as a result of the 1995 crisis, because the definition of capital to the Mexican authorities is already very strict, almost equal to that of Basel.

Such immediate implementation sends a signal to the outside that the country has a strong and solvent financial system.

Serrano emphasized that there is nothing to prevent Mexican banks from complying with Basel III middle-level and capital structure long before the 2015 deadline established internationally.

The CNBV official explained that the global crisis of 2008 brought to light some deficiencies not covered by the Committee on Banking Supervision in its previous agreements (Basel I and II).

Among the shortcomings is the risk weighting of assets but with the same level of capital and inadequate definition of said capital.

The third, he said, is that Basel II allowed weighting assets that were statistically models which were more risky and which were not and thus distribute the capital.

The fourth point that failed in Basel, he said, is that it did not regulate at all the liquidity of banks, since it was assumed that if a bank was solvent and had good capital it would always be someone who could pay, but the crisis proved otherwise.

So what Basel III does mostly is correct these 4 problems, said Vice President of Regulatory Policy CNBV.

To resolve the first point, he said, it is asking for more capital for proper valuation of assets based on their risk and thus actually having capital to absorb losses in a crisis scenario.

Hence, in section 2, it calls for much of the capital being of the highest quality, which really serves to absorb losses and to direct shareholders.

In Section 3, it provides insurance for errors in the model and it calls for the absolute limit of leverage, ie the capital as a percentage of all assets without weighing them so it does not exceed a certain level.

This insurance will prevent a repeat of the case of subprime mortgages, where the models say that the risk was lower and it grew brutally without capital backing.

And as a fourth point it regulates the liquidity of an institution for the first time through 2 requirements, the ratio of short-term liquidity so banks have sufficient liquid assets to enable them to address the passive side outputs, ie side deposits along one month over a period of stress.

The second requirement is the long-term liquidity, so that longer-term assets are deposits of public fondeen or long-term markets.

BASEL III is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11.

The Committee's members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Committee's Secretariat is located at the Bank for International Settlements (BIS) in Basel, Switzerland. However, the BIS and the Basel Committee remain two distinct entities.

The Basel Committee formulates broad supervisory standards and guidelines and recommends statements of best practice in banking supervision.