only consistent momentum in credit growth can lead to strong net benefits for the economy. the recent financial reform the recently approved, multi - layered financial reform contains measures that may strengthen the banks ’ institutional framework, allowing for more robust and sustainable credit expansion, among other benefits. three sets of measures that stand out seek more effective propertyrights protection for creditors, more formal regulation and the promotion of competition among financial intermediaries. on the subject of creditors ’ property rights, the reform makes significant progress towards correcting problems observed in the application of the bankruptcy law approved in 2000. specifically, the new legislation closes loopholes which debtors had been using to prolong the debt resolution process in areas such as intercompany liabilities, director and manager responsibility, while it makes bridge lending in cases of liquidity crunches more feasible. the reform reduces obstacles to expediency in the judicial process to recover collateral, illustrated by the possibility for debtors to choose the court level and select assets to be seized. an important innovation is the founding of specialized commercial - law courts at the federal level. in the field of regulation, the reform provides rules for the authorities to manage the resolution or liquidation of banks in cases of liquidity squeezes and insolvency. the specifics cover lending of last resort with equity shares as collateral, bank contingency plans for adverse scenarios, and ring - fencing actions, for example, in the case of majority shareholder problems. an expedient bank judicial liquidation process and a legal framework for transfer of assets and liabilities are established. the capital requirements to comply with basel iii guidelines are now mandatory under mexican law. the procedures for applying liquidity requirements are also determined. with respect to competition in the sector, a new law facilitates mortgage substitution by debtors, allowing them to choose banks offering more favorable terms. other measures that work in the same direction include greater facility for the mobility of deposits and consumer loans, meaning that customers can transfer their accounts and loans to other banks with less red tape and shorter delays. importantly, bundled sales of financial products and services are prohibited. these measures will potentially foster a more competitive, consumer - friendly and healthy banking system. along with other reforms, they may contribute to higher potential economic growth. however, as is true with the overall current reform agenda, the effectiveness of these measures will depend heavily on the quality of pending legislation needed to put the changes in place, and adequate implementation. the current economic cycle after a full year of

. in particular, bank credit expansion needs to pick up pace in a sustainable way. 2 in this aim, the first order of business is to understand why mexico is behind other nations in building a deeper, more accessible banking system. if we turn to recent history, higher levels of financial deepening have been attained but not sustained. in fact, the total domestic international indicators of bank penetration and financial inclusion are available in : world development indicators ( 2013 ), the world bank ; financial access survey ( 2013 ), international monetary fund ; and demirguc - kunt, a. and l. klapper ( 2012 ), “ measuring financial inclusion : the global findex database ”, world bank policy research paper 6025. for a review of the literature regarding the effect of financial development on long - term economic growth, see levine, r. ( 2004 ), “ finance and growth : theory and evidence ”, nber working paper no. 10766. bis central bankers ’ speeches financing to the private sector over gdp at the beginning of the 1970s and just before the crisis of 1995 reached new highs before swooning. 3 three key reasons help explain historical high volatility and average low levels of financing ratios. one was the accumulation of macroeconomic imbalances fueling excessive inflation, which created uncertainty and distortions, rendering lending activities more costly. the widening fiscal deficit of the 1970s and 1980s and financial repression resulted in the diversion of resources to the government. also, the nationalization of the banks which occurred in this context carried with it a drastic loss of skills and expertise in making loans. later, in the mid - 1990s, macroeconomic imbalances presented themselves again under a different guise. high short - term dollar - linked government debt and an unsustainable currency peg contributed to the emergence of a severe crisis. debtors found it difficult to make suddenly rising repayments on variable - rate loans in the face of surging inflation. a second factor stems from the financial liberalization that took place in the late 1980s without adequate bank regulation and oversight. this circumstance, together with the re - privatization of banks in the early 1990s, led to a huge expansion in low - quality loans to the private sector. existing poor accounting and provisioning standards, as well as insufficient capital, inevitably fed a subsequent credit bust. a third factor then became evident in the form of weak contract enforcement, particularly noticeable in widespread abandonment of credit obligations and difficulties in the repossession of collateral