Regulation is key to Mexico's banking reform success

Subject

Mexico's financial reform one year on.

Significance

Some of the most significant structural reforms carried out by President Enrique Pena Nieto during his first 20 months in office are only expected to produce results in the medium-to-long term. By contrast, financial sector reform, introduced in January 2014, was largely implemented by the end of its first year. It is starting to raise low banking penetration levels, reduce expensive lending rates, and boost competition.

Impacts

• The reform is expected to achieve most of its aims and have a significant impact on growth within five years of implementation.
• However, failure to enhance supervision and strengthen compliance could act as a disincentive to expand banking penetration.
• The reform will be insufficient to reduce the size of the informal economy without additional changes in fiscal and labour policies.