TY  - BOOK
AU  - Giugale,Marcelo
AU  - Giugale,Marcelo
AU  - Korobow,Adam
AU  - Webb,Steven
TI  - A New Model for Market-Based Regulation of Subnational Borrowing: The Mexican Approach 
PY  - 1999///
CY  - Washington, D.C.
PB  - The World Bank
KW  - Bank
KW  - Banks
KW  - Banks and Banking Reform
KW  - Borrowing
KW  - Capital
KW  - Commercial Banks
KW  - Cred Debt
KW  - Debt Markets
KW  - Decentralization
KW  - Deposits
KW  - Economic Theory and Research
KW  - Emerging Markets
KW  - Externalities
KW  - Finance and Financial Sector Development
KW  - Financial Intermediation
KW  - Financial Literacy
KW  - Financial Performance
KW  - Governments
KW  - Institutional Development
KW  - Interest
KW  - Interest Rates
KW  - Lending
KW  - Loans
KW  - Macroeconomic Stability
KW  - Macroeconomics and Economic Growth
KW  - Moral Hazard
KW  - Private Sector Development
KW  - Risk
N2  - July 2000 - To bring fiscal discipline to state and municipal governments, Mexico's federal government has established a two-pillar framework that explicitly renounces federal bail-outs and establishes a Basel-consistent link between the capital-risk weighting of bank loans to subnational governments and the borrower's credit rating. Whether the framework succeeds will depend partly on market assessments of the government's commitment to enforce bank capital rules and refrain from bailing out defaulting subnational governments. Faced with weak subnational 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 subnational 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 borrowers' creditworthiness; and elicit a strong demand for institutional development at the subnational level. But its success will depend on three factors critical to implementation: Whether markets find the federal commitment not to bail out defaulting subnational governments credible; Whether subnational governments have access to financing other than bank loans; How well bank capital rules are enforced. This paper - a product of the Mexico- Country Department and Poverty Reduction and Economic Management Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to understand the subnational underpinnings of sustainable, national economic framework. The authors may be contacted at mgiugale@worldbank.org, akorobow@worldbank.org, or swebb@worldbank.org
UR  - http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-2370
ER  -