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FINANCIAL GLOBALIZATION IN

MEXICO
Subttulo

INTRODUCTION
The globalization of financial markets has been based on several factors that
have enabled their integration Two of them are financial deregulation and
free movement of capital. Especially relevant to this change has been
technological progress regarding the connection between markets.
new innovative financial products have been developed. Their aim is to
provide protection from growing volatility and increased risk in all financial
transactions.
The negative side of globalization and the high interconnection between
markets is the contagion effect of financia l crises. The most recent example
is the sub-prime crisis.

TRANSFORMATION OF FINANCIAL MARKET

Interest rates and deadlines are released


to stimulate competition; within this, the
legal reserve requirement for liquidity
ratio was replaced with what the bank
was no longer "window" for financing the
public deficit and allowed credit to flow
to private entrepreneurs.

A second stage of renegotiation and


restructuring of external debt that
extends from that year and takes place
during the eighties with negative net
flows of capital and changes in vision and
objectives of economic policy.
18 commercial banks in re-privatized
public power; for that the regulatory
framework of banks and the stock
market, was changed.

TRANSFORMATION OF FINANCIAL MARKET


From these structural reforms in the late eighties a
significant increase in the public's preferences for using
banks

By signing the North American


Free Trade Agreement financial
reform it was characterized by
the gradual opening of the
sector to foreign capital.

BOND MARKET
The bond market was soon extended to the participation of
private companies. Thus, since the nineties, private companies,
public entities and government from the debtor, investment funds
from the creditor, and investment banks and rating agencies in a
dynamic relationship credit, modify flows and the relationship
again of the Mexican economy with international markets.

FOREIGN DIRECT INVESTMENT


Foreign direct investment (FDI) has been one of the key
components of foreign flows to the domestic markeT, especially in
the second half of the nineties. This flow has been mainly linked
to the new export dynamics under the reorganization of the
productive apparatus of some transnational corporations, but also
to the purchase and takeover of domestic companies.

FINANCIAL DEREGULATION AND BANKING


DISINTERMEDIATION
The process of deregulation and liberalization of the financial system
is divided into two stages. In the first 1988-1992, the establishment
of universal banking is consolidated, and the second 1993-2001, the
changes aim to ease the regulatory framework to stimulate new
entry and expansion of foreign institutions and new financial market
players market, particularly commercial and investment banks.
This caused an increase in foreign exchange reserves, which reduced
the limitations of the balance of payments and created the
conditions to sustain the program of price stability.

Banking System
In this situation, the Bank of Mexico was forced to intervene to prevent
systemic risk and manage the restructuring of the banking system. During the
nineties, the Mexican financial system changed radically. The new estructure is
characterized by three trends:

Weakness border between


banking and non-banking
activities. Commercial banks
have become financial
services companies while,
nonbank institutions were
forced to compete
aggressively with banks,
both on the side of liabilities
and assets.

Following deregulation,
institutional investors,
particularly insurance
companies, pension funds
and capital market became
an important source of
financing.

The application of advances


in new information and
communications technology
to the financial sector.