Mexico has a long history with savings protection. The Banking Act of 1897 established the legal possibility of failure of a credit institution; however, in practice no bank failure occurred due to the economic support provided by the federal government.

In 1981 the General Law of Credit Institutions and Auxiliary Organizations provided for the creation of a fund to protect credit obligations assumed by banks. The justification for the measure indicated that the fund would address problems in individual banks but not risks to the system, which would be addressed by the Central Bank. The fund was never formally created on account of the financial problems of the day and the subsequent nationalization of the banking industry.

Later, in 1986, in accordance with the provisions of the Law Regulating Public Banking and Credit Service of 1984, the federal government created a trust in the Central Bank known as the Preventive Support Fund for Full Service Banks (Spanish acronym FONAPRE). The fund’s purpose was bolster the financial stability of full service banks and prevent their problems from having a negative impact on timely payment of their credit obligations. The banks contributed money to the fund for its operation. Under this scheme, for the first time banks, instead of the federal government, provided the resources to meet their financial problems. The possibility of bank liquidation was not considered, given that at that time, banks were owned by the federal government.

In 1990 the Law of Credit Institutions (Spanish acronym LIC) was promulgated, abrogating the Law Regulating Public Banking and Credit Service. Article 122 of the new law provided for the creation of the Banking Savings Protection Fund (FOBAPROA), with the following purpose:

“Implementation of preventive operations designed to prevent financial problems that full service banks can encounter and ensure the fulfillment of obligations assumed by such institutions, which are the Fund’s express object of protection”.

FOBAPROA’s equity consisted, basically, of ordinary and extraordinary contributions that full service banks were obliged to make, resources from financing obtained by the Fund, and other rights and obligations acquired or contracted by FOBAPROA, by any legal means.

Under the terms of Article 122 and the FOBAPROA charter, a Technical Committee was formed by nine proprietary members and their respective alternates, who were appointed as follows: four by the Ministry of Finance and Public Credit, three by the Central Bank, and two by the National Banking and Securities Commission.

If necessary, FOBAPROA, with its own funds, could grant credit institutions financial aid as a means of maintaining the stability of the banking system and above all of protecting the public’s savings. Banks that received such preventive aid would guarantee it with assets, government securities, and even their own shares in their capital stock.

The aforementioned Technical Committee was responsible for defining the terms and conditions of the aid granted by FOBAPROA; the deposits, credits, and other obligations, as well as the value of such objects of express protection; the frequency with which banks’ ordinary contributions were to be paid; and others indicated in FOBAPROA’s charter.

The trustee, the Mexican Central Bank, had the obligation to publish in the Official Gazette of the Federation, each December, the maximum value of obligations that would be subject to express protection by FOBAPROA in the immediately following year. The customary practice of the financial authorities had been to protect practically all bank obligations, and its actions in that regard were reported on by the trustee annually in the Official Gazette.

Creation of IPAB

In the aftermath of the financial crisis Mexico experienced in late 1994 and early 1995, in March 1998 the president sent several bills to the Mexican congress designed to reduce the risk assumed by banks and the probability of another crisis and outlining the scheme to be used to manage asset and liability operations resulting from measures the authorities took in response to the crisis, seeking to minimize the associated fiscal cost.

In December 1998 the federal congress passed the Law of Banking Savings Protection (Spanish acronym LPAB), and it was the published by the president in the Official Gazette of the Federation on January 19, 1999, taking effect on January 20 of the same year, making way for the creation of the Institute for the Protection of Banking Savings (Spanish acronym IPAB). The LPAB represented significant differences in relation to savings protection compared with previous legislation, which emphasized limited and explicit insurance coverage. IPAB started operations in May 1999.