Mexico released bank-bailout money only after each rescue deal had closed

Mexico's 1994–95 peso devaluation triggered a systemic banking crisis. The state rescue fund FOBAPROA kept banks alive with non-negotiable zero-coupon notes, averting collapse but resolving nothing: by June 1999 the estimated net fiscal cost was MXP873 billion, about 19.3% of GDP, and not one failed bank had been closed or sold. Banks sat on illiquid government paper, borrowed at punitive interbank rates, and real credit to the private sector shrank every year since 1995.

The end-1998 strategy replaced FOBAPROA with the better-funded, independent IPAB and phased out universal deposit insurance. The World Bank's $505.06 million Bank Restructuring Facility Loan (approved December 14, 1999, via Nacional Financiera) was built around one discipline: transaction-based disbursement. The Bank and the government agreed eligibility criteria for resolution deals and set aside a pool of funds; money moved only after an actual transaction closed, and IPAB used it to service performing notes issued in those deals.

Both floating tranches of US$150 million were earned and released within a year (June 19 and December 13, 2000). Failed banks were sold to well-run foreign banks, prudential regulation moved to international standards, and the ICR rated the outcome highly satisfactory — the earlier operation supporting FOBAPROA had been rated unsatisfactory.

The ICR's own lesson is blunt: disburse against completed resolutions, not promises of future action, and wait for political consensus on facing past losses before committing funds. The 'least cash solution' of swapping bad loans for government paper had only deferred the crisis.

Disburse only after a bank resolution closed

FOBAPROA had proven that unconditional support lets insolvent banks linger without functioning as banks.

Transaction-based tranches preserved the lender's leverage while leaving the government free to sequence deals as resources allowed.

Specifying eligibility criteria instead of naming transactions built flexibility into the loan, which the ICR credits for its success.

Making resolution costs explicit through the IPAB law ended the hidden, off-budget accumulation of obligations.

In a rescue, pay against completed transactions, not announced intentions; criteria-based tranches keep leverage without micromanaging which deal comes first.

A second BRFL was approved in June 2001 to finish resolving the remaining failed banks and divest residual assets. Foreign capital entered the sector at scale — by the mid-2000s most of Mexico's banking system was foreign-owned — and the strengthened banks weathered the 2001 downturn and regional contagion. The ICR rated sustainability of the short-term objectives highly likely, while noting that reviving credit access for small firms would take longer.