Mexico Seen as Reluctant To Lift Banking Barriers

NEW YORK - U.S. and Mexican officials have begun preliminary talks on a financial services section for the North American free trade agreement, Treasury officials and banking sources said.

But bankers said that progress has been slow and that Mexico has been showing no willingness to make significant concessions.

Mergers among U.S. banks have distracted bankers' attention away from the free trade agreement, the banking sources said. This, they said, has eased pressure on Mexico to liberalize its restrictions.

"It's going slower than anybody wants it to go," said Kevin Mulvaney, international banking group executive at Bank of Boston Corp.

"The indications are that it's going to take several years to open up the [Mexican] banking system," Mr. Mulvaney said.

"The Mexicans are dragging their feet," said another banking source who declined to be identified.

"They've got everything they want in the financial services sector - and we've got nothing - so there's no incentive for them to move ahead," the source said.

Restrictions Under Review

He and others asserted that big Mexican banks with branches in the United States are actively exploiting their advantage to build up U.S. customers ahead of a free trade agreement.

Mexican regulations do not permit U.S. banks to set up branches nor do they allow foreign interests to own more than 5% of the voting shares in a Mexican bank.

Gillermo Ortiz, Mexico's under secretary for finance and public credit, said last week that Mexico is considering easing restrictions on foreign ownership.

Branching Tops Agenda

However, U.S. bankers said any such move is of little interest.

"It's a step in the right direction but it's not the central issue," said Thomas L. Farmer, general counsel for the Bankers Association for Foreign Trade, a Washington-based industry association.

"The main thing we're interested in is branching," he said. "Ownership of banks is a cumbersome and not very attractive way to operate."

Most U.S. banks want Mexican restrictions on branching lifted so that they can pursue wholesale and investment banking activities.

In June, the United States, Mexico, and Canada agreed to begin negotiations on a broad-ranging North American free trade agreement.

The agreement is expected to lead to vastly increased trade and investment between the three countries.

The U.S. financial services negotiating team is headed by Barry Newman, deputy assistant secretary for International Monetary Affairs. It includes Treasury and Commerce Department officials and members of the U.S. Trade Representative's office.

The Mexican team includes officials from the Bank of Mexico and the finance and commerce ministries.

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