1897 Ley General
Between 1884 and 1897, bank charters were granted at the whim of the Federal Secretary of Finance (Secretario de Hacienda y Crédito Publico). Manuel Dublán, who served between 1884 and 1893, favoured a competitive banking system on the lines of the United States and encouraged the development of regional banks to compete with the national banks. His successor, José Ivés Limantour, concerned about the stability of the banking system, changed that policy to perpetuate the special status of national banks, revoking many of the bank charters issued by Dublán and refusing to issue any new ones pending the promulgation of a general banking law.
Within Chihuahua, the hoe of the first regional banks, on 27 May 1887 General Carlos Pacheco put forward to the Secretaría de Hacienda a proposal to regulate the legal position of the Chihuahua banksMemoria de la Secretaría de Hacienda, Mexico, 1887 and as a result of public pressure on 4 June Congress authorised the executive to modify the law. The Banco Minero had already taken over the small Banco de Hidalgo but in 1888 the Secretario de Hacienda y Crédito Público entered into new contracts with the Banco Minero and other Chihuahuan banks. The existing unlimited concessions were limited to fifteen years. The right to issue notes payable in silver at a discount was annulled, and the banks given a year to withdraw any such notes outstanding. Existing notes payable in silver also had to be recalled to be replaced by a new series with a different design and signed by the government-appointed Interventor. Thus for one reason or another all notes issued before 1889 were withdrawn. The banks were given the right to issue notes in value to three times their cash holdings up to a limit of their paid up capital, in denominations of 25c, 50c, $1, $2, $5, $10, $20, $50, $100 and $500. A bank’s capital had to be at least 500,000 pesos, though it could start operations as soon as it was 40% paid up. The bank had to organise itself as a limited company with at least five shareholders and statutes approved by the Secretaría. Once the shareholders had paid up the bank’s guarantees to the state of Chihuahua in the form of property mortgages would be cancelled. The bank had to publish its balance sheet monthly in the Diario Oficial of the federation and the Periódico Oficial of the state.
In 1889 a new Commerce Act replaced the Commerce Act of 1884 with Article 640 stating that banking institutions were to be controlled by bilateral contracts with the country's executive with such contracts needing the approval of Congress. Again the Chihuahuan banks petitioned Congress, asking for clarification of the law and recognition of their constitutional rights based on the current concessions. As in 1888 Congress recognised the validity of these concessions but submitted them to federal control, limited them to fifteen years and insisted on federal inspection.
By 1896 there was such disparity in the concessions granted to the various banks throughout Mexico that, after a commission, the Ley General de Instituciones de Crédito was passed on 19 March 1897. This law was a compromise between three competing interests. First were the Mexico City financiers and political elite arrayed around the Banco Nacional de México and the Banco de Londres y México, whose concessions granted them lower reserve requirements and the exclusive right to branch across state lines. Second were the smaller banks established under Dublán, which wanted to preserve their right to issue banknotes and limit further competition as much as possible. Third were the local political and economic elites in the various states, which wanted the right to establish their own banks to finance their entrepreneurial activities. The Act contained the following clauses:
(a) the Act would control all credit institutions within the country;
(b) all banks would be chartered with similar concessions and would be obliged to deposit 20% of their stipulated capital in federal bonds for the national debt as a prerequisite for obtaining their charter;
(c) the minimum capital for banks of issue was to be 500,000 pesos and 50% had to be presented in hard cash;
(d) the amount of paper money issued and the total of deposits on sight was never to be more than twice the metallic coinage in the bank's vault and the paper money issued should never be more than three times the amount of capital displayed. All issues were to be of voluntary acceptance by the public.
(e) If the total amount of paper money issued exceeded the maximum stipulated amount, the concession would be cancelled if the legal requirements were not met within a short period of time.
The Act forbad the issuing of notes in denominations lower than five pesos. Thus, all early one peso and two pesos and fractional notes were redeemed and destroyed.
The Act preserved most of the Banco Nacional de México’s and Banco de Londres y México’s privileges. They continued to enjoy the exclusive right to branch nationally and enjoyed a reserve requirement on their banknote issues of only 33%, compared to 50% for most of their competitors. In addition, the Banco Nacional de México enjoyed the exclusive privileges of providing financial services to the federal government: collecting tax receipts, making payments, holding federal deposits, and underwriting all foreign and domestic federal debt issues.
The existing banks were rewarded with very strict limits on competition. The law was written in such a way as to allow only a single bank to be established in a state, although existing banks were grandfathered in under the law and several banks were granted the right to establish branches in adjoining states. These banks, along with new ones founded under the new law, were not permitted to branch outside their concession territory, issue new stock on the stock exchange without the special permission of the Secretary of Finance, or establish branches or agencies within the Federal District. The law also allowed for the establishment of mortgage banks and bancos refaccionarios, which were denied the right to issue banknotes and were subject to various restrictions on the types of investment they could make. Without the right to issue notes, these banks could not compete, and Porfirian entrepreneurs took out few charters for them.
The result was a rather concentrated banking structure.
The 1897 Act permitted the government to negotiate with the established banks, with the purpose of modifying their concessions according to the new law.