WASHINGTON -- Bank and securities regulators reassured Congress Tuesday that the North American Free Trade Agreement would pose no threat to the safety and soundness of the American financial system.

Federal Reserve Governor John P. LaWare and Securities and Exchange Commissioner Mary L. Shapiro said the agreement would provide regulators adequate tools to ensure that financial institutions operating in Mexico, Canada, and the United States are operating prudently.

They also said the agreement would be a boon for U.S. banks and securities firms.

Access Guaranteed

The free-trade agreement would permit banks to set up subsidiaries throughout Mexico. It would also guarantee U.S. insurance companies access there.

At the same time, "Nafta appears to protect the interests of prudential supervision in the U.S. market and of financial institutions, while creating opportunities for U.S. banks and other financial firms in the Mexican market," Mr. LaWare said at a House Banking Committee hearing.

The regulators' reassurance, however, did not satisfy the banking committee. Chairman Henry B. Gonzales said that given their past records, he had little confidence that the Fed and the SEC could successfully keep an eye on the broader market resulting from the trade accord.

He also said that the regulator's vigorous and unconditional support of the trade accord was not reassuring.

Safety and Soundness Concerns

"Rather than reducing or removing concern, it heightens mine, he said.

Some have warned that entry of U.S. financial firms into Mexico could harm them. A volatile lending environment, an unstable economy, and widespread corruption could weaken healthy institutions that move into the country, they say.

"The Mexican lending environment is similar to the lending environment in this country during the 1980s, which caused problems for many U.S. banks," Mr. Gonzales warned.

"We must deal with these issues so that if Nafta is approved, the safety and soundness of our financial services industry is preserved."

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