2006 News Releases

For immediate release:
October 23, 2006

Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org

Mexico’s Rapidly Modernizing Financial System Subject of Dallas Fed’s Economic Letter

DALLAS—Mexico’s remarkable efforts developing world-class financial markets will have wide-ranging effects on the nation’s economy, according to the October issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Laying the Foundation for a Mortgage Industry in Mexico,” international financial analyst Ed Skelton uses Mexico’s booming housing market and burgeoning securitization market as evidence of the dramatic progress in the country’s financial system.

Modern financial markets enhance economic well-being in several ways:

• Boosting capital flows, enhancing savings and improving efficiency.
• Allowing families to accumulate equity over time via mortgage payments.
• Creating a more liquid housing market, thus making relocation easier and promoting household mobility.
• Encouraging individuals to report income and pay taxes, creating a more formal economy.

Securitization’s growth offers the most impressive example of Mexico’s financial modernization as this practice frees up funds, reduces borrowing costs, and leads to a more secure and efficient financial system, Skelton finds.

Mortgage lenders in Mexico are now offering fixed-rate, 20-year mortgages at roughly 9 percent, with a required down payment of 10 percent, according to Skelton.

“Ten years of economic stability, declining inflation, financial market reform and banking sector competition have greatly enhanced lenders’ ability to offer longer-term loans at reasonable rates,” he writes.

A robust derivatives market, vigorous corporate bond market and rapid credit growth offer further evidence of Mexico’s remarkable financial system success, Skelton finds.

The October 2006 issue of Economic Letter can be found at www.dallasfed.org.