With passage of the North American Free Trade Agreement, there is a growing interest among Mexican banks and investors about entering the United States banking market.
The Texas banking market offers attractive opportunities for a Mexican bank investor to acquire a U.S. financial institution. Entry of Mexican banks and investors into the Texas banking market will benefit Texas banks by enlarging the pool of possible buyers for banks that wish to sell.
In addition to its geographic proximity and historical ties to Mexico, several other factors make Texas a logical market for Mexican banks and investors. Texas has a large number of potential target banks, a favorable regulatory environment and comparatively low prices as compared to other banking markets in the United States.
Texas has 1,100 commercial banks. At any given time, a number of these banks are actively for sale and many others can be bought "for the right price." An interested purchaser, as a result, can usually find a target bank of the size and in a location the purchaser desires.
Texas offers Mexican banks and investors alike a favorable regulatory environment. The Texas Banking Code has been construed to permit non-U.S. holding companies to acquire commercial banks in Texas.
In addition, Texas permits statewide branching. As a result, once a Mexican bank or investor group acquires a commercial bank in Texas, the bank can branch into any other town or city in the state following a relatively quick and routine procedure by the bank's primary regulator. Texas also permits non-U.S. citizens to be directors of Texas state banks.
Mexican Investor Acquisitions
Federal and state law have permitted the ownership of a commercial bank in Texas by non-U.S. citizens for many years. Mexican investors have been involved in the ownership of Texas banks for many years.
Mexican investors are subject to the same regulatory approval process as U.S. citizens. Mexican investors must receive regulatory approval from the bank's primary federal regulator under the Change in Bank Control Act prior to obtaining "control" of a U.S. bank, whether it be a state or a national bank.
Mexican investors must also comply with the applicable change-in-control provision of the Texas Banking Code. Change-in-control approval for a foreign investor often takes somewhat longer than for a U.S. citizen due to the time-consuming process of completing the required background checks with foreign regulatory agencies.
The Board of Governors of the Federal Reserve System governs entry of foreign banks into the U.S. banking market. An important feature of the regulation of foreign banks in the United States is the concept of "comprehensive consolidated supervision."
With the enactment of the Foreign Bank Supervision Enhancement Act of 1991, the Federal Reserve Board is barred from approving any foreign bank's application for a United States bank subsidiary, branch or agency unless the foreign bank is "subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country" (this is commonly referred to as the "comprehensive supervision standard") and the Federal Reserve Board is required to take the comprehensive supervision standard into account in acting upon a foreign bank's application for representative office.
Allowed Until '91
The board prior to 1991 permitted foreign banks to establish agencies, branches and representative offices in the United States. Currently, there are at least 26 representative offices in Texas. In addition, at least six Mexican banks have agencies in the United States, one of which is in Texas.
The Federal Reserve Board has not yet determined whether Mexico satisfies the comprehensive supervision standard. With the passage of Nafta, however, it is anticipated that the comprehensive supervision standard is satisfied by Mexico and Mexican banks will be permitted to acquire full-service commercial banks, branches, agencies, or representative offices in the U.S. banking market.
Range of Options
Upon the favorable determination that Mexico satisfies the comprehensive supervision standard, Mexican banks will have a variety of choices for conducting banking operations in Texas, both as to type of operation and choice of charter (national or state). The principal types of commercial banking operations include full-service commercial banks, branches, agency offices, and representative offices.
Of these categories, only the commercial bank permits a Mexican bank to engage in a full range of wholesale and retail banking services in the United States, including taking domestic retail deposits and making domestic loans.
Texas expressly prohibits foreign banks from establishing branches in Texas. Federally licensed branches are also prohibited as the Comptroller of the Currency, which is the primary regulator for foreign bank branches, looks to state law to determine whether branches are permissible.