Mexicans Pumping Billions Into U.S. Banks
Mexicans Pumping Billions Into U.S. Banks published by Evanvinh
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Posted on 2016-04-14
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With $80.6 billion in U.S. banks, Mexican corporations and individuals have more money deposited in U.S. financial firms than any other Latin American country, according to data released in March by the Federal Reserve.
Between 2012, the first year of President Enrique Peña Nieto’s administration, and January of this year, U.S. commercial and investment bank’s liabilities to Mexico grew from $54.6 billion to $80.6 billion, a whopping jump of around 48%.
For the sake of comparison, Mexican daily La Jornadasaid that the sum of Mexican funds in U.S. banks–deposits, U.S. Treasury bills, and CDs among others–is similar to the country’s foreign debt which, according to Mexico’s Treasury Secretariet, was $82.5 billion at the end of 2015.
U.S. bank’s liabilities to Mexico have registered a whopping jump in recent years (Photo credit: Michael Nagle/Bloomberg).
The rise of Mexican deposits coincides with Mexico’s economic woes and an unusually weak peso. TheInternational Monetary Fund (IMF) lowered this week Mexico’s growth for 2016 from 2.6% to 2.4 %. The Mexican peso, at the same time, has fallen to record lows over the past year.
Mexico has a long history of capital flight at times of financial instability and economic crisis, therefore it can not be ruled out that the rise in Mexico’s stake in U.S. banks in recent years is partly due to capital flight.
There are, however, more compelling factors. Roberto González Amador, Mexican daily La Jornada’s senior business reporter, believes that it reflects a business expansion by Mexican corporations in the U.S. that are opening accounts and investing in U.S. dollars.
With an estimated bilateral trade of $536 billion of goods and private services, Mexico is the U.S. third largest trade partner after China and Canada.
The $80.6 billion in deposits represents 3.2 times the value of the remittances—as the funds Mexican workers sent home every year are known. Last year, Mexico’s Central Bank reported that Mexican remittances were $24.8 billion.
Republican front-runner Donald Trump wants to impound a portion of the Mexicans’ remittances to pay for the wall he promises to build on the Southern border if he becomes President. Paradoxically, the funds Mexicans deposit in the U.S. banking system are three times bigger than the remittances Mexicans send across the border.
Gonzáles said Mexican law does not forbid nationals from investing in financial institutions of foreign countries, as long as dividends sent back are reported to Mexico’s tax authorities the same way they should be reported to U.S. appropriate authorities if they decide to keep them in the States.
“It’s similar to the Panama Papers: having funds in tax havens is not illegal, the issue is how are those funds being used,” González said, referring to last week’s massive leak of documents on the world of offshore financing around the globe.
The Fed’s report shows that Mexican funds in U.S. banks and other financial firms are by far the largest in Latin America, followed by Brazil, with $32.2 billion and Chile with $24 billion. Overall, U.S. deposits from the 11 Latin American countries recorded by the Fed add up to $239.4 billion.
But the largest deposits in the region come from the Cayman Islands, a favorite off shore haven, which alone has $1.3 trillion in U.S. banks. In total, deposits from eight Caribbean countries reached $1.554 trillion as of January (with the vast majority from the Cayman Islands), a sum that exceeds Mexico’s GDP. Cuba is on the bottom of the list with $44 million in deposits.
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