As Mexico, Canada, and the United States draw closer to a free trade agreement, some experts arepredicting that all of North and South America could become a single, integrated economic zone within a few years.

But bankers who met last month in Naples, Fla., for the annual convention of the Bankers Association for Foreign Trade wondered aloud whether U.S. banks would benefit from the expected expansion in hemispheric trade.

Some warned that U.S. banks may already be missing the boat.

"The infrastructure [in the United States] for spurring exports is poor, and fear of foreign risk really concerns banks in this country," said Darin P. Narayana, international executive vice president at Norwest Corp., one of the few banks actively promoting trade finance.

"Latin America is one of the world's fastest-growth export markets but [has had] the least attraction for [U.S.] banks," Mr. Narayana said.

Drop in the Bucket

Bankers estimated that only 15 to 20 of the approximately 12,000 U.S. commercial banks are seriously involved in trade finance.

They added that banks' reluctance to take on Latin exposure without U.S. government guarantees, coupled with a lack of interest in or understanding of how trade finance work, is a major obstacle to expansion.

Other bankers and analysts added that problems at home are another reason for the low level of activity in trade finance.

First Interstate Bancorp, one of the first to securitize trade finance credits, recently chose to sell its overseas commercial banking networks - to Britain's Standard Chartered PLC - in order to improve its capital ratios.

Bank of Boston Active

"There just aren't a lot of [U.S.] banks out there," said Kevin Mulvaney, international banking group executive at Bank of Boston Corp., which is active in Latin America and in trade finance.

Meanwhile, Latin American banks are stepping up their trade finance operations.

But they, too, appear unlikely to play a major role because many are not subject to consolidated supervision, as required under new U.S. banking legislation.

This, bankers and regulators said, could prevent them from expanding in the United States and shut them out of bigger trade finance operations.

Banco Nacional de Mexico, known as Banamex, last year obtained approval to set up an agency in Miami but has since had to put its plan on hold pending a review by the Federal Reserve Board.

A Venezuelan banking group, Consorcio Inversionista Bancaracas, pulled out of the acquisition of Eagle National Bank of Miami several months ago after failing to present enough assurances that it would have a single primary regulator.

So at this point, European banks seem poised to gain the most from a free trade agreement, said Manuel Lasaga, managing director of the Miami-based consulting firm International Management Assistance Corp. and editor of America's Market Briefing, a quarterly bulletin on economic developments in Latin America and the Caribbean.

He said the European institutions are already "profiting from Latin trade and the resurgence of Latin America economies."

"There isn't much competition, and most of [it] is from Dutch, German, British, Swiss, French banks," said Mr. Narayana.

Barclays in Miami

Barclays Bank, for example, has set up a Latin American regional headquarters in Miami and is rapidly expanding trade-related dealings with Mexico and other Latin countries.

The British bank "hasn't lost a dollar on its short-term trade lines" since the debt crisis began in 1982, said Michael Wood, division director for the trade services group at Barclays in London.

Other banks, like NMB PostBank of Germany, and France's Banque Nationale de Paris are using their networks across Latin America to expand in trade-related finance.

"More and more Latin banks are asking us to finance their U.S. business because they can't find U.S. banks," said Kai Graf von der Recke, senior vice president at Baden-Wuerttembergische Bank.

U.S. banks' reluctance to take on foreign risk is a "tragedy," he added.

Regulatory Restrictions

But U.S. banks don't take all the blame for missing out on the opportunities of free trade.

In fact, lack of progress on banking reform, and a failure and to include financial services as a vital component of the North American free trade talks, has straitjacketed bankers who might be inclined to expand internationally.

So long as U.S. bankers' time and energy are taken up fighting for reform at home and free access to other markets like Mexico, there are few trade-related expansion options.

"We want to be in Mexico when major corporations are investing and setting up operations," said a senior U.S. banking official who declined to be named.

"If we have to wait four or five years, we'll lose out on their business."

"A free trade zone wont' be a reality unless it's complemented by some sort of a scheme to integrate financial systems in this hemisphere," said Mr. Lasaga, of International Management Assistance.

"Unti this happens, we won't have a free trade agreement in the true sense."

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