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Providing liquidity to the payment systems

Objectives

Banco de México provides liquidity to the payment systems with two purposes: to regulate the supply of money in the market (monetary policy implementation) and to promote the smooth functioning of such systems.

Instrumentos

In order to regulate the supply of money, Banco de México controls the amount of currency in circulation by carrying out, on a daily basis, two types of open market auctions. The first type, borrowing auctions, are used for reducing the amount of currency in circulation, whereas the second type, lending auctions, are used to increase it. In the case of lending auctions, banks receiving a loan are required to formalize it with either a collateralized overdraft or a repo agreement. The liquidity that banks obtain through such auctions is deposited in their SIAC accounts.

As for promoting the smooth functioning of the payment systems, Banco de México uses two instruments to provide the intraday liquidity needed by banks and brokerage houses to settle their operations in the SPEI®, SIAC and DALÍ payment systems. The first instrument allows collateralized overdrafts in the participant´s SIAC account. The second instrument consists of performing intraday repo operations with banks and brokerage houses supported by banks. The liquidity that banks obtain through these repo operations is deposited either in their SIAC accounts or in their cash DALÍ accounts. As with overdrafts, there is a limit to the total value of repo operations a bank can perform, depending on its capital.

Collateral

Any credit that a bank takes from Banco de México, as well as any SIAC overdraft it may incur, must be fully collateralized with the cash reserves for monetary-regulating purposes that banks hold with the central bank.

For repo operations, both intraday and to term, Banco de México accepts only liquid securities capable of being traded in secondary markets and issued in Mexico by the federal government, IPAB or Banco de México itself.

Costs

For those credits granted by Banco de México whose term is other than intraday, banks are charged the same rate that results from the auction. In contrast, intraday credits are free of charge, except when the bank in question fails to repurchase the securities before the end of day, in which case the cost is twice the reference interest rate for the securities traded (Tasa Ponderada de Fondeo Bancario).

Liquidity management among payment systems

Every bank can, during operating hours, transfer funds between the accounts it holds in the SPEI®, SIAC and DALÍ systems.

Computational systems

The System for Administering Collateral and Repos (Sistema de Administración de Garantías y Reportos, SAGAPL) is used by banks for managing credit agreements for multiple-day terms (and their associated collateral), term repos, and the cash deposits required to collateralize overdrafts on SIAC accounts.

Banks and brokerage houses use the Repo Unit to Provide Liquidity to the Payment Systems (Módulo Reportos para Proporcionar Liquidez al Sistema de Pagos, RSP) for setting up intraday repo operations.