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Free Checking… or else!

14 July 2007

During my stint as an illegal alien in Mexico, about the only difficulty I ever encountered was opening a checking account. I had one in the U.S., so could draw on that for cash from Tarjeros Automaticos (not “ATM”… which is slang for “way cool”). I didn’t feel particularly alone in keeping cash around my apartment, though I did recommend to foreigners moving to Mexico City to think of better places to stash the cash than under the mattress.

This is a good move… Mexico’s banking system has been antiquated and frustrating for years (I once heard a Mexican banker saying that reforms in the 90s moved the banking system boldly into the 16th century). It’s weird, that in theory Mexican banks are even safer than U.S. banks (by law, Mexican banks cannot go broke, and depositors are completely covered. If a bank goes under, it is taken over by the government and sold), but people avoid using them.

The Bloomberg reporter says its the high fees keeping people from using banks, but it goes much deeper than that. People don’t trust banks. They’re bastions of the oligarchy, and there was some support for José Lopez Portillo when he nationalized them in 1982.

Lopez Portillo was barking mad — for unknown reasons he signed an executive order outlawing the teaching of cursive writing in Mexican schools (since rescinded) and vowed to protect the peso like a dog. For the rest of his life, the poor guy couldn’t enjoy a meal in a restaurant without everyone going “woof! woof! woof!”.

His successor, Miguel de la Madrid was a banker. He started the privatization of the Mexican economy, but it was Salinas de Goutari — widely considered a crook — who oversaw the restructuring and privatization of the banks. Most ended up in foreign hands (including, eventually Banco de Mexico, which is owned by Chase). And, everything started to go to hell.

Many blamed the spectacular hyperinflation of the time (between 1975 and the 1992 revaluation, the peso went from 12.5 to the U.S. dollar to about 3500 to the dollar) on the bankers. And there were a series of bank failures involving embezzlements and mismanagement (as there were in the U.S. Savings and Loan collapse during the Reagan administration — which had also sought to loosen government control over the banks).

Though the Mexican banks are secure, the biggest headache for small businesses and consumers is that to be profitable, they have to operate by rules developed for wealthier countries. You just can’t get a small business loan for, say 10,000 pesos, let alone for a very small business loan like 2000 pesos to buy a bicycle for your delivery business, or a washing machine to do the neighbors’ laundry.

Capitalists and socialists unite! Attacking the bankers was a good political move for people like AMLO — who made an international reputation for himself by, of all things, pushing through tighter bank security regulations. Not financial security, but physical security. The rules were modeled on Italian laws and those from the City of Chicago and dealt with things like bulletproof glass and teller’s cages. The bankers, used to free city police protection and egged on by the Fox Administration’s search for some way to pick a fight with AMLO, came out the eventual losers. Meaning, the banks are safer than ever.

But, for a few thousand pesos, why bother. This is where the capitalists come in. Bloomberg mentions WalMart’s banking, but WalMart is a Juanito come lately to the business. Monte Piedad has been offering small loans since the 18th century and the pawnbrokers fill an essential gap (at my company, we once had to pawn a watch to meet payroll, which wasn’t at all unusual for any small business in a country where there’s no good way to borrow against receivables), but pawn shops aren’t exactly modern banking.

Department stores like Electra realized how much they could earn from small loans and — without any altruistic motives — went into giving credit for very small purchases indeed (you can buy a steam iron on credit at Electra). Brazilian store chains had the same idea, and a Banco Azteca teller cage in the back of an Electra store is a lot less intimidating than walking into HCSB for a few hundred pesos.

One other point. The country desperately needs to reform its tax laws. With even small businesses doing mostly a cash business, there’s no way to trace income and create a workable system. A friend of mine talked about “forcing” people to open bank accounts, but Mexicans are geniuses when it comes to subverting anything they are forced to do… seduction might work, but force, no.

It sounds, from the Bloomberg article, like the big guys (Banamex, HSBC, Sandander, Scotiabank — owned by U.S., British, Spanish and Canadian companies respectively) — are the ones who need forced to do business in Mexico the Mexican way.

Mexico to Require Lenders to Offer Free Accounts

By Adriana Arai


July 13 (Bloomberg) — Mexico’s central bank will require lenders to offer free accounts to low- and middle-income consumers to reduce service fees, which authorities say are keeping many Mexicans out of the financial system.



Under new regulations to be published July 16, commercial banks will have 180 days to offer accounts that don’t charge fees for automated-teller machine withdrawals, balance inquiries, debit cards and maintenance, the central bank said today on its Web site.


The requirement will make it easier for millions of Mexicans to open a bank account for the first time while forcing lenders to become more efficient, said Pascual O’Dogherty, head of financial system research at Mexico’s central bank.


“Many people don’t open an account because they’re afraid of the fees,” he said in an interview from Mexico City.


Mexico is stepping up efforts to increase competition in an industry where six banks control almost 90 percent of banking assets. Most of the country’s population of 105 million have no access to financial services. The government last year gave Wal- Mart Stores Inc.’s local unit, Wal-Mart de Mexico SAB, a commercial-banking license just as a similar request was denied by U.S. regulators.


Central Bank Governor Guillermo Ortiz, for his part, has made competition a priority since winning a second term in 2003. Ortiz has since required the banks to cut credit- and debit-card fees by $200 million annually and disclose all levies built into loans, among other measures.



The biggest banks in Mexico are units of Bilbao, Spain- based Banco Bilbao Vizcaya Argentaria SA, New York-based Citigroup Inc. and Banco Santander SA. HSBC Holdings Plc’s unit is the fourth largest. Enrique Castillo, president of the Association of Mexican Banks, wasn’t available today to comment on the new regulations, according to his office in Mexico City.


The new rules apply to any account where individuals deposit as much as 165 times the daily minimum wage per month — about 8,000 pesos ($743) — and to any payroll account, O’Dogherty said. Such threshold covers most of Mexico’s population, he said. The central bank doesn’t have an estimate for how many accounts would benefit or how many people may enter the banking system for the first time, he said.


Just a fifth of Mexico’s 25.8 million households use financial services, according to a 2004 survey by the government’s statistics agency, the latest available.

3 Comments leave one →
  1. el_longhorn permalink
    16 July 2007 11:40 am

    One of the most legendary fuck ups of the Mexican government has to be the bank nationalization-then-privitazation during the 1980’s/1990’s. I forget the exact dates and numbers, but I believe the banks were nationalized in 1982, with the government buying out the private owners. Then, in 1994 (or therabouts), the banks were privatized – mostly sold to international investors. Through all of this, the Mexican government lost about $10-12 billion – since they sold the banks for less than they bought them for, and the banking system in Mexico was virtually destroyed. A decade later, the system seems to be finally recovering.


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