WASHINGTON -- Top officials from the Federal Reserve and the Securities and Exchange Commission yesterday endorsed the North American Free Trade Agreement, saying it would open new markets to U.S. financial firms without compromising the soundness of domestic financial markets.
"Let me state that the Federal Reserve supports Nafta without qualification," Fed governor John LaWare said in testimony to the House Banking Committee.
Mary Schapiro, an SEC commissioner, said at the same hearing, "From a securities perspective, Nafta is a good agreement for the United States."
Both regulators asserted that the trade pact would provide significant new opportunities for U.S. financial firms in Mexico without creating new regulatory burdens on their agencies.
"Nafta will not affect the SEC's ability to regulate the U.S. securities markets, or indeed require any changes in the federal securities laws or rules," Schapiro said. "Nafta will, on the other hand, create substantial opportunities for U.S. securities firms in Mexico."
Schapiro cited three reasons why the trade pact would not disrupt current U.S. securities laws: the SEC does not now distinguish between the trading of U.S., Mexican, and Canadian securities within the United States; Nafta would not prevent any of the three countries from enacting tougher regulations within their borders; and the three countries are likely to increase their coordination of enforcement activities.
In addition, Laware said Nafta would not diminish the Fed's ability to regulate U.S. banks operating in or out of the United States, nor would it impair the Fed's ability to regulate Mexican and Canadian banks operating in the United States.
"Nafta contains provisions that satisfy the concerns of the Federal Reserve," Laware said. "There is a strong provision that protects the actions of regulators."
When asked what might happen if the controversial trade pact is not ratified, LaWare speculated that Mexico probably would look to another highly developed economy, such as Japan's, to forge a trade agreement that would bring more financial services to Mexico.
"If that occurred, then we'd lose the natural connection between the nations because of our geography," LaWare said.
During yesterday's hearing, the committee's chairman, Rep. Henry Gonzalez, D-Texas, voiced his skepticism about the trade agreement, saving Mexico has a long history of corruption, such as money. laundering, that U.S. regulators may not be prepared to deal with. "There's a lot of history here," he said.