President Clinton's decision Tuesday to use an executive order rather than legislation to get $20 billion in "peso stabilization funds" for Mexico did little to calm international financial markets and raised fresh concerns about the impact of the crisis on U.S. banks.
At the same time, a $3 billion international bank credit aimed at providing Mexico with fresh liquidity foundered.
The bank loan "won't go anywhere till there's a lot of clarity on the U.S. government position," said one New York banking executive.
U.S. banks face immediate risks on their cross-border lending to Mexico, which totaled $17.3 billion as of Sept. 30, according to the Federal Reserve Board.
Banks also face a longer-term loss of business in such areas as bond underwriting, trading, and financial advisory work if the Mexican markets continue to deteriorate.
The new plan draws $20 billion from the U.S. government's exchange stabilization fund. In addition, the International Monetary Fund and the Bank for International Settlements will contribute $17 billion and $10 billion, respectively.
Rep. Jim Leach, the chief congressional negotiator for the Republican- controlled Congress, praised the president's initiative. He said it is unlikely that Congress will try to block the president.
U.S. banks have sharply increased lending to Latin America over the last few years. According to the latest Fed survey, U.S. banks had an aggregate Latin American exposure of $54.2 billion on Sept. 30, up from $51.9 billion in June and $49.9 billion last March.
Of the September total, Mexico had the largest share, followed by Brazil at $12.5 billion and Argentina at $9.5 billion.
BankAmerica Corp., Bankers Trust New York Corp., Chase Manhattan Corp., Chemical Banking Corp., Citicorp, First Chicago Corp., and J.P. Morgan & Co. accounted for 74% of the Latin American exposure, or $40.4 billion.
"The potential risk which this exposure poses for shareholders is significant," said Raphael Soifer of Brown Brothers Harriman & Co.
Latin American exposure for all seven banks equals 76% of their combined tangible common equity as of Sept. 30 and amounts to 2.8 times their aggregate pretax income, Mr. Soifer said.
He also suggested that U.S. banks will come under administration and congressional pressure to support Mexico.
Citicorp is the most heavily exposed U.S. bank in Mexico, with some $3.4 billion in cross-border and local lending there. A Citicorp spokesman said he could not comment on recent developments.
Analysts said they were also concerned that the devaluation of the Mexican peso may spill over to other Latin American countries, where Bank of Boston Corp. has a large retail network.
Senior executives from Bank of Boston, however, said the bank had virtually no exposure in Mexico and did not anticipate problems in other countries in Latin America.
"We do not foresee a major crisis," said Manuel Sacerdote, head of Bank of Boston in Argentina.
He added that the bank has profited from both an increase in deposits and a jump in corporate loan margins from 50 basis points to around 200 in the last few weeks.
Robert M. Garsson in Washington contributed to this article.
