Bank Protectionism Hurts Mexico - and Us

Article excerpt

Bank Protectionism Hurts Mexico - and Us

Herb Vest argued in his Oct. 22 commentary ["Mexico's Banks Still Need Protection," page 4] against an immediate opening of banking in Mexico to U.S. banks. That "would severely endanger the banks of a developing country," he wrote.

This old protectionist position simply will not stand up to the requirement of a progressive new Mexico.

Economic reforms by the administration of President Carlos Salinas have begun to unleash the potential of Mexico's economy in several ways. His government has lowered import tariffs, and Mexico's formerly protected companies have really started to adjust to world market forces.

Protectionism out of Style

As these companies grow, they will export and import. Moreover, Mexico has privatized many state-owned companies, including its huge telephone company and several banks.

Mexico is moving away from a protectionist approach. Just a few years of these policies have triggered a boom in productive investment and improved prospects for growth and employment.

The privatization of Mexico's commercial banks is off to a fast start. In the year since President Salinas announced his plan to return the banking sector to private hands, eight of the nation's 18 banks - including the two largest banks-have been sold to the private sector.

Another key step is to let foreign banks compete on an equal footing with Mexican banks.

Foreign Banks Are Hobbled

Today, commercial banking stands apart from many other Mexican industries because it is protected from foreign competition.

Indeed, Mexico heavily circumscribes the powers of foreign banks within its borders. With but a single exception, all foreign banks are limited to representative offices and are denied basic banking powers.

Moreover, Mexican regulation prevents foreign firms from holding more than 30% equity in a Mexican bank. This limitation is likely to keep most foreign banks from participating in the privatization process.

Many banks, particularly since their own troubles in recent years, seek full control of credit and other key decisions when investing in another financial institution.

These banking restrictions are inconsistent with the thrust of Mexican government reforms. The open, trade-oriented Mexico now taking shape needs an efficient banking system.

Help Awaits

The yardstick of Mexican banking efficiency will include lower cost of money for Mexican customers, lengthening of maturities available, and improved overall intermediation of funds between savers and investors. …