Magazine article American Banker

Clinton's Executive Order to Back Peso Raises New Worries on Bank Exposure

Magazine article American Banker

Clinton's Executive Order to Back Peso Raises New Worries on Bank Exposure

Article excerpt

President Clinton's decision Tuesday to use an executive order rather than legislation to get $20 billion in "peso stabilization funds" for Mexico did little to calm international financial markets and raised fresh concerns about the impact of the crisis on U.S. banks.

At the same time, a $3 billion international bank credit aimed at providing Mexico with fresh liquidity foundered.

The bank loan "won't go anywhere till there's a lot of clarity on the U.S. government position," said one New York banking executive.

U.S. banks face immediate risks on their cross-border lending to Mexico, which totaled $17.3 billion as of Sept. 30, according to the Federal Reserve Board.

Banks also face a longer-term loss of business in such areas as bond underwriting, trading, and financial advisory work if the Mexican markets continue to deteriorate.

The new plan draws $20 billion from the U.S. government's exchange stabilization fund. In addition, the International Monetary Fund and the Bank for International Settlements will contribute $17 billion and $10 billion, respectively.

Rep. Jim Leach, the chief congressional negotiator for the Republican-controlled Congress, praised the president's initiative. He said it is unlikely that Congress will try to block the president.

U.S. banks have sharply increased lending to Latin American over the last few years. According to the latest Fed survey, U.S. banks had an aggregate Latin American exposure of $54.2 billion on Sept. 30, up from $51. …

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