During colonial times and the first years of independence the church was the most important single provider of credit in Mexico in part because of its vast holdings of property. Once divested of its lands by the Reforms of the 1850s, it was no longer able to carry out these operations on such a scale and other sources of credit were needed. However, providing such credit was made more difficult by the fact that Mexico did not have a banking law that defined the legal obligations of banks, their creditors and their debtors. Commercial houses (casas de comercio) made loans to hacendados and to the government at exorbitant rates at times, and some casas funded their operations by circulating liabilities called vales. Vales evolved into bearer notes that were redeemable for some type of commodity money (usually gold or silver coin) on demand. Bankruptcies among casas seem to have been a common phenomenon. Therefore if the public was to have any faith in banks, it was likely that they either would have to own considerable amount of land or would have to have connections with well-known foreign firms.
In May 1854 the Mexican Congress adopted a Code of Commerce as its first serious attempt to regulate financial institutions. However, the 1857 Constitution did not in fact mention banking and as Article 117 stated that those powers that were not expressly granted to the federal officers were reserved to the states this would have enabled state legislatures to pass their own laws. Chihuahua was the only state, outside of the Federal District, where the legislature took advantage of this constitutional right before the federal power decided to assume it because in Chihuahua the expansion in the economy had caused the need for, and provided the basis for, the establishment of such institutions and the issue of banknotes.
In the second half of 1883 the federal government proposed to reform Article 72 of the Constitution to make mining, commerce and banking its exclusive preserve.
In 1884 a worldwide crisis affected the Mexican economy and there was a panic as holders of paper currency tried to convert banknotes into landholdings, jewellery, coins, and domestic deposits of foreign exchange. In the same year, in the wake of a serious financial crisis prompted by the federal government’s overissuance of railroad subsidy promises, the federal authorities engineered the merger of the two largest Mexico City banks, the Banco Nacional Mexicano and the Banco Mercantil Mexicano, into the Banco Nacional de México. The explicit intention was to model the Banco Nacional de México on the early Bank of England, granting it a monopoly over the issue of paper money in return for providing credit to the federal government and the rest of the banking system in times of trouble. It was agreed that in return for the bank providing a current account of eight million pesos the government would require banks already in existence to obtain a federal charter and federal offices could only accept Banco Nacional de México notes.
For better or for worse, the Banco Nacional de México never played the role intended for it. Political opposition to the proposed monopoly over paper money soon crystallized around the local branch of the Banco de Londres, México y Sud America, which enjoyed extensive connections with many prominent Porfirian financiers and politicians. The resulting legal and political battles lasted 13 years, and the law giving the Banco Nacional de México its privileges never went into effect.
The Mexican government passed its Código de Comercio on 15 April 1884. Chapter XII referred to “Los Bancos”. Articles 954 to 955 stated that in future federal authorisation would be needed to establish any bank (bancos de emisión, circulación, descuento, depósitos, hipotecarios, agrícolas, de minería o con cualquier otro objeto de comercio). Articles 957 and 958 laid down that they would have to be limited companies (sociedades anónimas) with at least five founder members, and a minimum share capital of $500,000, with at least half fully paid up. Only banks conforming to the law could issue notes payable to the bearer on sight: note issue could not exceed paid-in capital: fixed cash reserves were required, and all banknotes other than those of El Banco Nacional de México were taxed at 5% of their value. A final article stated that existing banks could not continue operating unless they subjected themselves to the Act within six months.
The Act naturally affected the local banks in Chihuahua and they petitioned their local legislature. This opposition, coupled with that of the Banco de Londres, México y Sud America, led to the new banking law of 3 June 1886[text needed] which permitted the establishment of banks of issue in the states.
While the national banking system that developed provided badly needed financial assets, it exhibited some difficulties. For example, banknotes issued by local banks circulated at a discount that increased with the distance from the bank that issued them. Also, local bank notes were so frequently used as payment - especially where notes of the Banco Nacional de México were scarce - that local business might well have come to a halt if the government enforced the provision that only notes of the Banco Nacional de México were acceptable as means of payment of funds due to the government. Local notes were in fact accepted as long as the Banco Nacional de México would go along with the practice but the accumulation of local bank notes clearly gave the Banco Nacional de México the ability to affect practices by local banks and influence monetary conditions in areas where it did not have an office.