American Banking Activity in Mexico

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.

Market share caps for individual banks are 1.5 percent throughout the transition period. Before 2000, capital size for individual banks will be allowed to increase through internally generated growth but not through acquisition. During the transition period, American and Canadian banks will be allowed to acquire domestic Mexican banks only up to the 1.5 percent individual market share limit. After 2000, however, American and Canadian banks may make acquisitions up to four-percent of total market sh…

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