A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach
Faced with weak sub-national finances that pose a risk to macroeconomic stability, Mexico's federal government in April 2000 established an innovative incentive framework to bring fiscal discipline to state and municipal governments. That framework is based on two pillars: an explicit renunciation of federal bail-outs, and a Basel-consistent link between the capital-risk weighting of bank loans to sub-national governments, and the borrower's credit rating. In theory, this new regulatory arrangement should reduce moral hazard among banks and their state, and municipal clients; differentiate interest rates on the basis of the borrower's creditworthiness; and, elicit a strong demand for institutional development at the sub-national level. But its access will depend on three factors critical to implementation: 1) Whether markets find the federal commitment not to bail out defaulting sub-national governments credible. 2) Whether sub-national governments have access to financing other than bank loans. 3) How well bank capital rules are enforced.
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dig-okr-10986214562023-11-17T16:10:16Z A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach Giugale, Marcelo Korobow, Adam Webb, Steven accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates Faced with weak sub-national finances that pose a risk to macroeconomic stability, Mexico's federal government in April 2000 established an innovative incentive framework to bring fiscal discipline to state and municipal governments. That framework is based on two pillars: an explicit renunciation of federal bail-outs, and a Basel-consistent link between the capital-risk weighting of bank loans to sub-national governments, and the borrower's credit rating. In theory, this new regulatory arrangement should reduce moral hazard among banks and their state, and municipal clients; differentiate interest rates on the basis of the borrower's creditworthiness; and, elicit a strong demand for institutional development at the sub-national level. But its access will depend on three factors critical to implementation: 1) Whether markets find the federal commitment not to bail out defaulting sub-national governments credible. 2) Whether sub-national governments have access to financing other than bank loans. 3) How well bank capital rules are enforced. 2015-02-13T19:39:31Z 2015-02-13T19:39:31Z 2000-06 http://hdl.handle.net/10986/21456 en_US Policy Research Working Paper;No. 2370 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo application/pdf World Bank, Washington, DC |
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Banco Mundial |
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DSpace |
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Estados Unidos |
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US |
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Bibliográfico |
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En linea |
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dig-okr |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
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en_US |
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accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates |
| spellingShingle |
accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates Giugale, Marcelo Korobow, Adam Webb, Steven A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| description |
Faced with weak sub-national finances that pose a risk to macroeconomic stability, Mexico's federal government in April 2000 established an innovative incentive framework to bring fiscal discipline to state and municipal governments. That framework is based on two pillars: an explicit renunciation of federal bail-outs, and a Basel-consistent link between the capital-risk weighting of bank loans to sub-national governments, and the borrower's credit rating. In theory, this new regulatory arrangement should reduce moral hazard among banks and their state, and municipal clients; differentiate interest rates on the basis of the borrower's creditworthiness; and, elicit a strong demand for institutional development at the sub-national level. But its access will depend on three factors critical to implementation: 1) Whether markets find the federal commitment not to bail out defaulting sub-national governments credible. 2) Whether sub-national governments have access to financing other than bank loans. 3) How well bank capital rules are enforced. |
| topic_facet |
accounting bank capital bank lending bank loans banking supervision banking system bankruptcy bankruptcy laws banks borrowing business cycles capital formation collateralization commercial banks competitive markets contingent liabilities cost of capital credit markets credit ratings current expenditures debt Decentralization demand curve demand elasticity deposits development banks disposable income equilibrium expected value externalities externality financial markets financial performance foreign exchange GDP gross revenue Inelastic Demand institutional development interest rate interest rate effect interest rates macroeconomic stability mandates marginal cost marginal revenue market forces moral hazard municipal governments municipalities negative externalities oil opportunity cost profit maximization public debt public good public services rating agencies regulatory framework regulatory regimes return on equity revenue sharing risk assessments risk of default subnational finances subnational governments technical assistance transparency voters zero elasticity subnational finances regulatory framework risk management incentives local officials federal funds markets bank loans credit ratings interest rates creditworthiness institutional framework credibility capital adequacy default rates |
| author |
Giugale, Marcelo Korobow, Adam Webb, Steven |
| author_facet |
Giugale, Marcelo Korobow, Adam Webb, Steven |
| author_sort |
Giugale, Marcelo |
| title |
A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| title_short |
A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| title_full |
A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| title_fullStr |
A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| title_full_unstemmed |
A New Model for Market-Based Regulation of Subnational Borrowing : The Mexican Approach |
| title_sort |
new model for market-based regulation of subnational borrowing : the mexican approach |
| publisher |
World Bank, Washington, DC |
| publishDate |
2000-06 |
| url |
http://hdl.handle.net/10986/21456 |
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1787227317088550912 |