1. 1 Cross Border Financial Positions and Exposures Juan Pablo Graf Banco de México

2. I. Introduction 2 Domestic Sectors Foreign Sectors Banks Other Financial Entities Listed Corporations Non - Listed Corporations Households BanksNon Banks Information Gaps (Authorities)

3. 3 Domestic Sectors Foreign Sectors Banks Other Financial Entities Listed Corporations Non - Listed Corporations Households BanksNon Banks Information Gaps (Publicly disclosed) I. Introduction

4. 4 The majority of systemically-important banks are foreign- owned I. Introduction Market Share CITIBANK-BANAMEX 23.5 BBVA-BANCOMER 21.2 SANTANDER-SERFIN 14.4 HSBC 9.5 SCOTIABANK-INVERLAT BANORTE 11.1 3.2 INBURSA % Other subsidiaries of foreign banks (14) Other Banks (21) 4.6 8.4 4.0

5. II. Exposures of financial corporations 5 BanksNon Banks Banks Detailed daily information on: Loans & Deposits Securities (incl. Repos) Derivatives Swaps Forwards Options FX transactions Detailed daily information: Securities and Derivatives Credits and Deposits (No individual counterpart ID) Monthly Information Corporate credit Financial Entities (Brokerage Houses, Insurance Co., Pension Funds) Detailed daily information: Securities and Derivatives Credits and Deposits (No individual counterpart ID) Domestic Sectors Foreign Sectors

6. 6 Subsidiaries and Parent Banks Financial regulation limits the exposure that domestic banks may have to related counterparties (i.e. individuals, firms and any financial entity owned by the same shareholders). For domestic banks, which are subsidiaries of foreign financial groups, the limits apply to any exposure to parent banks and their foreign subsidiaries (e.g., London, Cayman) As of 2008: The limit applies to all financial exposures (i.e., loans, deposits, securities, repos, the net exposure arising from derivative transactions; and settlement risk in forex exposures) The limit was reduced to 50% of Tier 1 capital. II. Exposures of financial corporations

7. 7 Some subsidiaries increased their lending to their parent banks significantly. These positions have been closely monitored. However, this information is not made public. Subsidiaries and Parent Banks II. Exposures of financial corporations

8. 1 Information gaps Detailed data collected by central bank allowed a prompt assessment of financial entities exposures to “toxic” assets This information was very useful to assess early the level of exposure. This information was not made public. 8 II. Exposures of financial corporations

9. 9 Type of exposure: Derivatives OTC Debt with banks and other FIs Debt through securities issued abroad Information sources: Creditor data BIS-type data Central bank survey Timeliness (work-in-progress) Granularity (maturity,counterparties currencies) Debtor data Listed corporates (see next) Non-listed ? Credit registry ? III. Exposures of non-financial corporations ?

10. Non-financial corporations in emerging market economies reported large losses due to FX OTC derivatives 10 IV. OTC Derivatives Exchange Rate Domestic Currency / USD 15 days moving avg.

11. Host authorities do not have timely and detailed information about derivative operations between foreign banks and other FIs domestic non-financial firms Financial counterparties (domestic and foreign) might not have information about firms’ derivatives operations with other counterparties Foreign financial counterparties of domestic firms do not have information about firms’ credit history Complexity of products 11 IV. OTC Derivatives

12. 12 Regulatory responses (May 2009) Securities Markets Regulation(Periodical reporting - Quarterly) Market-to-market positions / Underlyings / Notional amounts Detailed payment conditions Contingency analysis Financial Information Rules (Financial Statement Disclosure Rules) Risks involved (detailed analysis) Hedging structure of every derivatives position (including “off- balance sheet” transactions) Collaterals Valuation techniques Levels of exposure IV. OTC Derivatives

13. Creditor data Timeliness, granularity of disclosures (maturity, counterparties, currency) Households: debt or equity V. Non-listed non financial corporations and households BanksNon Banks Non-listed Corporations BIS-type Aggregate statistics No information (If regulated or listed home supervisors may have some information) Households 13 Foreign Sectors Domestic Sectors

14. 14 Response to “Madoff and Stanford” cases: stress the importance of investors verifying that institutions are authorized to take deposits or investments. Irregular deposit taking and low-profile soliciting will continue, thus information gaps for domestic authorities remain. Cooperation among international authorities may mitigate the information gaps and greatly contribute to understanding risks borne domestically from investments in foreign funds. Investments in foreign funds “through” an institution in Mexico (“low profile soliciting”, e.g. Stanford) Domestic authorities have no power over such investments. V. Non-listed non financial corporations and households