WASHINGTON -- Christmas came a few days early for the Mexican banking industry.

The Federal Reserve ruled last week that Mexican bank regulators are up to snuff, a decision that helps clear the way for that country's banks to move north.

"The legal framework for the regulation and supervision of banks has been strengthened, and the Ministry of Finance and the National Banking Commission have instituted new programs that materially enhance the prudential supervision of all banking organizations in Mexico," the Fed said.

The Fed ruling came in response to an application by Banpais S.A., Mexico City, to open an office in New York. The application was approved.

The decision indicates that the Fed has concluded that Mexico subjects its banks to "comprehensive supervision on a consolidated basis," said Paul S. Pilecki, a partner at Shaw, Pittman, Potts & Trowbridge.

"Everything they discuss here seems to lead to that conclusion," Mr. Pilecki said. "They run through everything, and after looking at all these factors, I don't think there is much left for Mexico to do to meet the standard."

However, the Fed didn't have to reach that conclusion, because Banpais only wanted to open a representative office, he said.

The Foreign Bank Supervision Enhancement Act of 1991 requires the Fed to determine that a foreign bank is subject to "comprehensive supervision on a consolidated basis" by its home country regulator before it can open deposit-taking offices here.

Congress passed the law in the wake of the BCCI scandal, which involved a rogue foreign bank holding company operating without supervision.

Gil Schwartz, a partner at Skadden, Arps, Slate, Meagher & Flom, said the Fed's explanation of how Mexican regulators met the law's requirements impressed him.

"It says, 'Here is what we are going to look at, and these are the standard,'" Mr. Schwartz said of the Fed order.

The decision has added significance because the North American Free Trade Agreement removed many barriers to cross-border banking. But until the Fed finds that Mexican regulators have complied with the supervision law, Mexican banks would be stymied in their moves north.

The Fed governors said the Banking Commission does regular safety and soundness exams, reviewing bank management, asset quality, liquidity, capital adequacy, and earnings potential.

Mexican officials expanded their reviews in August 1993 to cover an entire institution, the Fed noted.

Mexican banks and holding companies also regularly submit financial reports to regulators, and they hold frequent discussions with the commission on compliance issues.

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