The Phaserl


NAFTA’s Looming December Shake Up

by Nomi Prins, DailyReckoning:

I recently stayed in the Tlalpan district of southern Mexico City. Tlalpan is its largest borough and an historic area — dotted with lovely gardens and plagued by drug traffickers.

Nearby, I was honored to give a talk at the prestigious business school, EGADE. This is part of the Tecnológico de Monterrey, a university that has spawned world leaders for decades. My speech was part of an event sponsored by the internationally renowned Aspen Institute in Mexico.

This was not my first speech in Mexico. In the years since the 2008 financial crisis, I have delivered talks there frequently. My focus has been on the complexities of the U.S.-Mexico relationship, particularly from a banking perspective.

But this was the first address I’ve delivered in Mexico since Donald Trump became the U.S. president. As you may have guessed, Trump’s election is a game changer for trade, finance, and the banking systems of these two neighboring nations.

The topic of my latest speech there was NAFTA and financial regulation, and their ramifications, in both countries, as well as the foreign banks involved and the resultant flow of money over the border. (You can see the full slideshow I presented on NAFTA by clicking here.)

International relationships are in unprecedented flux. Mexico, like every other country, is re-examining its trade and financial relationships with the U.S., while considering opportunities with other nations.

While I delivered my talk, an EU delegation was meeting with Mexican officials at the other end of the university, trying to deepen trade ties.

Ever since Trump’s disparaging comments on Mexico and NAFTA during his campaign, the bond between the EU and Mexico has strengthened. The more confusing and nationalist our trade policy appears, the faster our traditional trade partners will create new, better alliances outside of the U.S.

This creates opportunities for new relationships to form and new sources of investment in Mexico — and new ways to view relations going forward.


By the early 1990s, big U.S. banks like BankAmerica, Chase Manhattan, Chemical Bank, Citicorp, Goldman Sachs, and JPMorgan had extended almost $30 billion of U.S.-Latin American debt. A big chunk of that went to Mexico.

But that debt was in trouble. The U.S. and Mexico saw NAFTA as a vehicle to recoup loan losses.

NAFTA was enacted in 1994. Chapter 14 of the agreement allowed foreign banks to operate in Mexico. NAFTA became a primary opportunity for foreign banks to enter the Mexican market, buy banks and set up shop. This little-discussed chapter is currently being considered for renegotiation and is the crux of our issue today.

This arrangement had some repressions — positive in financial services provision, negative in increased foreign bank concentration in Mexico and drug-money laundering.

In 1999, five years after NAFTA began, Glass-Steagall was repealed under President Clinton. Officially, the Gramm-Leach-Bliley Act did the deed and allowed mega U.S. banks to become “too big to fail.” It brought commercial banking, trading, and investment banking under one roof, which paved the way for the 2008 financial crisis.

Along the way, it enabled Citigroup (then Citibank), one of the biggest new “supermarket” banks in the U.S. to go “hunting” in Mexico. Notably, former U.S. Treasury Secretary Robert Rubin joined Citigroup’s board of directors — after he negotiated NAFTA and the repeal of Glass-Steagall.

Citigroup had a special relationship with Mexico. Prior to NAFTA, from 1982–89, Citibank was the only foreign bank allowed to operate there. Today, it’s the biggest foreign bank operating in Mexico, and second largest bank in Mexico. But perhaps not for long.

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