American Banking Activity in Mexico

OPERATIONS BY AMERICAN BANKS IN MEXICO SUBSEQUENT TO NAFTA

This research examines the operations by American banks in Mexico subsequent to the implementation of the North American Free Trade Agreement (NAFTA). The motivations for this activity, the extent of this activity to the present, the effects on this activity of the "Peso Crisis" in late-1994, and the outlook for the future of the operations of American banks in Mexico are addressed.

Motivations for American Banks to Enter the Mexican Market

NAFTA, a free-trade pact between the United States, Mexico, and Canada, created the world's largest trading bloc. The agreement included measures that affect the financial services sector and specifies commitments to liberalize access to the financial services markets by all three countries.

Under NAFTA, Mexico permits American and Canadian banks to open subsidiaries and invest in or purchase banks in Mexico. During the transition period that ends in 2000, American and Canadian bank subsidiaries in Mexico are limited to an aggregate market share of beginning at eight-percent and gradually increasing to 15 percent by 2000. Market share is measured by percentage share of total Mexican bank capital. After the transition period, market share limit will end unless Mexico imposes temporary safeguard provisions if foreign bank market share rises too quickly. Such provisions, if imposed, will be required to end entirely by 2007.

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to this market, Chemical is focusing on the finance needs of Mexico's top 100 corporations, which have annual sales of more than $200 million each." Both BankAmerica and Wells Fargo have established subsidiaries in Mexico. "Neither BankAmerica nor Wells Fargo's ventures are expected to have a noticeable impact anytime soon on the banks' earnings. But analysts said the initiatives make sense because they position the banks to benefit from growth in trade from the North American Free Trade Agreement." More than 10 American banks, Citicorp and Bank of Boston Corp., have opened peso-dealing subsidiaries in Mexico. Wells Fargo has established a partnership with Banco Nacional de Mexico, also known as Banamex. In October 1995, the Bank of Boston Corp. opened full-service wholly-owned commercial bank subsidiary, Banco de Boston, S.A., in Mexico City. The institution provides a wide array of corporate and investment banking products and services in both Mexican pesos and foreign currencies. The services range from global cash management, treasury and foreign exchange to trade services, corporate finance and commercial loans. The President of Banco de Boston, Luiz de Campos Salles, said that: "We have been actively lending t

Category: Business - A