Why does a credit institution fail? There are several reasons, ranging from mismanagement and reviews of their solvency, in the granting of larger loans to large companies; poor periodic control by the banking and financial authorities -which are the ones who granted them the authorization to operate and are obliged to review them-; to poor supervision and handling of various legal obligations.
When the state of liquidation is decreed by the Institute for the Protection of Bank Savings (IPAB) that replaced the Fobaproa, of a credit institution, the most affected external persons are the account holders. Who also, many times the deposits they have are the savings of a lifetime of work.
The legislation, which is the Law of Credit Institutions, after the great problem of Fobaproa in which private debt became public debt to move the Mexican financial system forward, has clearly marked a before and after for the maximum amount, as well as the priority of credits in charge of the bank, which must be paid when it – the credit institution – cannot continue operating.
Account holders, regardless of the amount deposited in the bank, once the resolution of the National Banking and Securities Commission is published in the DOF, through which it revokes the authorization to operate as a credit institution, the placed in a state of liquidation at its expense -of the Institute for the Protection of Bank Savings (IPAB)-.
Within the consequences of the state of liquidation, there is the order to close its offices and branches, as well as the paralysis of its active, passive and service activities so that it does not continue causing more damage to account holders.
Account holders are only entitled to receive deposit insurance from IPAB for an amount of 400,000 investment units (UDIS). On May 25, 2022, the value of the UDIS for the period between May 26 and June 10 of this year was published in the DOF.
For June 10, which is the closest date to the preparation of this article, 400,000 UDIS is 2,930,854.8 pesos 00/100 MN The UDI is changing and the credits contracted in UDIS must be applied to the value of the publication of said unit in the DOF or on Banxico’s official website, which is the same figure in both media.
Once the CNBV revokes the authorization to operate as a multiple banking institution to a credit institution and places it in a state of liquidation in charge of the IPAB, the banking judicial liquidation procedure is initiated before a District Court in Civil Matters. In said procedure, a sentence of credit recognition, ranking and priority is issued, in which the provisions of article 241 of the Credit Institutions Law are applied, which provides, among other issues, for the ranking of the Bank’s credits that is being liquidated judicially. That is, it establishes who or who will be paid first.
The priority goes in the following order, first it is applied to the debts that the credit institution has with its workers for the payment of wages, salaries or indemnities; then, the debts that it has derived from credits with creditors with guarantee or lien; third, labor credits other than salaries, wages or compensation must be settled; then, in fourth place, come the credits derived from the payments made by the IPAB, derived from the deposit insurance, that is, the 400,000 UDIS or any other debt that it has with the IPAB. In fifth place, the savers are already coming for the amount of their savings that exceed 400,000 UDIS, which, as was seen from the equation, in reality, there are many account holders who lose most of their savings, because it only covers up to 2,930,854.8 pesos 00/ 100 MN, so they could lose most of their savings, in sixth place come other credits and at the end; in seventh place, other credits derived from non-preferred subordinated obligations.
The question now is whether or not this priority is fair and whether the amount of the 400,000 UDIS is. At first sight, an account holder when a multiple banking institution in which he had saved his money goes to judicial bank liquidation, what he wants is for his money to be returned to him. Finally, it is hers and it is the product of his work, earned in a dignified and honest manner, and there is no reason for someone who mishandled the money of others and misused his authorization to function as a Bank to keep it. However, the law has to sacrifice someone and order the priority of payments. If there is no order and it is done in a disorganized way or without taking into account deposit insurance, it could generate chaos among creditors.
In other words, neither the workers nor the account holders are responsible for the judicial liquidation of the credit institution.
Historically, salaries and wages have had a priority over the credits of bankrupt companies and there is no doubt about that, the doubt here is given by the deposit insurance granted by the IPAB for 400,0000 UDIS on the deposits of savers. In these cases, when making a decision, it is necessary to see which one causes the least harm. Determining that first the account holders be paid and then the credits with the IPAB for having distributed the bank insurance to the same account holders, would generate disorder. And to determine that the law is constitutional because it puts debts with IPAB first for deposit insurance, is to sacrifice account holders who have more money than what they are given for insurance. It is true that any decision that is made hurts, and that both have high costs, but here the point is to make the decision that has a lower cost. In that sense, the fact that all account holders are treated equally and deposit insurance is covered before account holders, is the lesser of evils.
That was resolved by the Court, which confirmed the criteria of a Collegiate Circuit Court, by resolving the direct Amparo in review 5461/2021 with the judicial liquidation of a Bank in 2020.