PALM SPRINGS, Calif. - The Mexican Bankers Association said it plans to adopt standards to reduce credit risk and speed the clearing of checks among banks in the United States, Canada, and Mexico.

Bankers from the three countries want to establish check-clearing standards in preparation for the explosion in cross-border payments that is expected if.the North American Free Trade Agreement is adopted.

The standards that are being hammered out deal with checks drawn on a bank in Mexico, Canada, or the United States, denominated in U.S. or Canadian dollars, and deposited in another Nafta country. Faster clearing would reduce banks' exposure to fraud and speed funds to the worker with an account in another country.

In Line with Neighbors

The group of bankers, which includes representatives from the U.S. Council on International Banking Inc., the Canadian Bankers Association, and the nonprofit National Law Center for Inter-American Free Trade met for the third time last week here at the Council for International Banking's annual conference.

The Mexican banks agreed to adopt check-clearing standards - including a time frame for return of checks - that will bring them in line with common practice in the United States and Canada.

Today a check paid in Canada on an account in Mexico could take two to three months to be returned. While the Canadian Bankers Association has not yet agreed to the guidelines, which in many respects resemble the American Regulation CC, the support of the Mexican group was more critical.

The Mexican system is far less efficient than the systems in the United States or Canada and will require a technology overhaul.

"There are advantages to all countries," said Conrado Alba, senior vice president, international division, Bancomer S.A., based in Mexico City. Mr. Alba is the Mexican Bankers Association representative at the conference.

He said that as a result of the new agreements, "Check-clearing will be a much less risky process, it will be much less costly, and there will be greater use of the check mechanism."

Mr. Alba plans to propose the creation of a clearing house that would designate one entity per country to sort and forward the cross border checks.

Technology Overhaul

Bankers say by the end of the decade, check data may be sent electronically across national boundaries.

Currently, some 2 million to 3 million checks drawn on Mexican banks are handled by American banks every week.

"That's likely to grow significantly after Nafta," said Boris Kozolchyk, president of the National Law Center, based in Tuscon, Ariz.

In order to adhere to the standards, the Mexican banks will have to install new technology and redesign their checks so they can be processed by the standard equipment installed in other countries.

Observers said the changes in the Mexican banking system were possible, because it is starting from scratch. The government turned banking over to the private sector only 6 years ago.

"Since privatization, there has been an intense effort for Mexico to automate its banking system," Mr. Alba.

For the Canadians, the sticking point is that many of the American regulations are more stringent than those governing Canadian banks, because the Canadian system, with its five large clearing banks, is more efficient.

However. the Canadians are expected to approve the guidelines once minor points are ironed out.

The group advises that the guidelines be incorporated into contracts between correspondent banks. At this point the changes are voluntary, and have not required the consent of central banks or regulators.

The guidelines cover the weight and size of a check, the quality of the magnetic ink print, and the configuration of the magnetic ink, or MICR, line.

Check remittance forms that accompany return items are to be written in English and Spanish when the form is sent between banks in Mexico and the United States and in English and French when the check is being returned between banks in the United States and Canada.

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