In 1990, as part of a massive denationalization drive, President Carlos Salinas de Gortari of the Institutional Revolutionary Party (PRI) moved to amend the Mexican Constitution to allow for the privatization of banking and credit institutions. Once the measure was approved, his administration moved swiftly: between June of 1991 and July of 1992, some fifteen banks were sold off, a rate of more than one a month. As the newspaper El País reported at the time, the justification made for the “surprise” move was to bring down the debt and deficit while freeing up funds for development. “Mexicans cannot admit such a property-owning state with such considerable resources invested in the banks,” argued the Salinas administration, “in a nation with such deficiencies and needs and basic social urgencies.”
Underneath the rhetoric of concern, however, the banks were being handed over to a select number of magnates by means of a sham bidding process in which the second-place competitor of one tender was the next in line for the subsequent one, and so on. By means of this colossal boon, the Salinas administration could swell the roster of multimillionaires whose fortunes had been made on the dismantling of the Mexican state.
In the wake of the so-called tequila crisis of 1994, Mexico’s freshly privatized banks failed. Instead of renationalizing them, newly inaugurated president Ernesto Zedillo — applying the technocratic brand of economics he had studied at Yale — proceeded to bail them out, tapping a recently created contingency fund known as Fobaproa. Reckless loans, personal debts, toxic assets, all of it got sucked up by the Fobaproa vacuum cleaner and dumped onto the shoulders of the Mexican public, which was already reeling from a devaluation that had seen three zeroes wiped off of its currency.
Originally stated to cost $110 billion pesos, the cost of the bailout ballooned to $1 trillion pesos, then to $2 trillion (US$90 billion), bleeding some $50 billion pesos (US$2.2 billion) out of the federal budget annually in interest payments alone. Originally scheduled to be paid off in thirty years, the debt is now projected to take until at least 2070 to be fully liquidated, leaving three generations or more on the hook in an upward wealth transfer from the poorest to the richest. In a historical irony for a measure that was billed as a deficit-buster, the privatization and subsequent rescue of the banks fueled a national indebtedness that reached 45 percent of GDP under former president Enrique Peña Nieto.
Once they had been bailed out, Mexico’s banks were then turned around and sold off — this time to a slate of international buyers. Inverlat was purchased by Scotiabank, followed, as the new millennium dawned, by the purchase of Serfin by Santander, Bancomer by BBV, Banamex by Citibank, and Bital by HSBC. By 2003, 82.3 percent of Mexico’s banking capital was in foreign hands, split between Spain, the United States, the UK, and Canada. As the buyers shifted, so too did the justifications for the sell-offs, revolving now around the need to bring international efficiency and stability to Mexico’s beleaguered banking system.
The Daily Dread
In Mexico, there’s a particular feeling of dread associated with dealing with the bank. Lines are long, time is short, and customer service ranges from curt at best to, in the case of campesinos and the indigenous, an often-appalling level of disdain and racism. Attempting to call on the phone means entering a labyrinth of hang-ups, holds, transfers, and contradictory information that can consume the better part of a day.
When the news arrived of his mother taking ill, Carlos returned from Mexico City to his hometown in the state of Guerrero in order to take care of her. Due to her worsening condition, a stay that was supposed to last a few weeks turned into several months. When Carlos returned to the capital, he went to take out money only to find that his balance had been slashed. Suspecting robbery or fraud, he made a visit to his branch, only to find that the cause of the missing funds was entirely different: while he was gone, HSBC had raised the monthly minimum balance requirement in his account from $4,000 to $4,500 pesos (US$175 to $200) and, because his balance was beneath the new limit, had been deducting $300 pesos a month (US$13.50) from his account. “It’s a poor tax,” says Carlos. “If I’d had more money in the account, this never would have happened.”
As for the accounts themselves, it seems that there is nothing that is not subject to a charge or commission, including, but not limited to, making more than three movements per month, checking one’s balance, requesting an additional account statement, requesting an account statement for previous periods, requesting the “unfounded” investigation of a charge, making a transfer, writing a check, and withdrawing money from a teller.
Credit cards are openly extortionate, with annual interest rates of anywhere from 25 percent to 75 percent; factoring in other commissions such as annual and late fees, total annual costs can easily exceed 100 percent. Mortgage interest rates, for their part, are three to four times higher than in the United States. In addition, customers often find themselves signed up for insurance policies and other services they have to fight to get out of. And because there is no incentive for private banks to establish branches where it is not profitable, large swathes of rural Mexico have no access to institutional banking at all, leaving them easy prey for usurious loan sharks or the unregulated credit unions known as cajas de ahorro.
After intense pressure from Santander, to take out a preapproved credit card, Nancy finally gave in. After using it a few times to get her through a rough patch with her finances, she paid her balance and put it away when things improved. But when she noticed that her wages were being garnished, she discovered that the card may have been forgotten by her, but not the bank: in addition to the annual fee, she was being charged for inactivity, and the fees had racked up. When she went to her branch to attempt to negotiate a repayment system, she was told that the situation could only be resolved over the phone. When she called, however, the voice-recognition identification feature would not confirm her voice and blocked her from going any further. Although she has managed to move her direct deposit to another bank to avoid the ongoing garnishing of her wages, she is fearful of pursuing a claim. And because of the pandemic, the offices of the CONDUSEF, the federal agency that handles complaints about financial services, have been closed. “These places may have to make their money,” she says, “but they can’t be massacring us like this.”
If all of this weren’t enough, banks in Mexico also administer some $4 trillion pesos (US$185 billion) worth of the individual retirement accounts known as AFORES, established when the pension system was privatized in 1997. Not surprisingly, in their twenty-three years of existence, commissions on the accounts have risen at a faster rate than the funds themselves. Throw into the mix the low salaries paid to employees and you wind up with a scenario in which banks routinely rack up higher profits in Mexico than in their countries of origin. And because of the cartelized structure — with a handful of big banks cornering the near totality of the market — there is effectively nowhere else for consumers to turn except the pay-per-service quasi-banking available at convenience stores such as the OXXO chain.
The word “cartel” is appropriate here in another way. As the past week’s revelation of the FinCEN files makes clear, Western banks move trillions of dollars’ worth of suspicious money around the world, enriching themselves and their precious stakeholders while doing little — besides the pro forma filing of “suspicious activity reports” — to stop the flow of laundered money from drugs, organized crime, and embezzlement from funding terror networks, wars, and human trafficking. According to the newspaper La Jornada, banks in Mexico have been very much in on the act, with some $5.5 billion dollars’ worth of suspicious transactions to have been carried out between 2010–16, including BBVA, Santander, CIBanco, BancoBase and Banorte. One of the FinCEN documents even points a finger at former president Enrique Peña Nieto by means of a series of suspicious transfers carried out by his former campaign adviser, Juan José Rendón Delgado.
Meanwhile, caught between COVID-19, chicanery, and a wall of commissions, daily customers have no choice but to try to stay one step ahead, scouring statements and small print for every latest catch. When Sergio signed up for a program at BBVA allowing him to defer payments on his credit card balance for four months in order to help cope with the effects of the pandemic, he thought he was getting a breather that would help him get back on his feet. He quickly discovered, however, that instead of allowing him to pick up where he had left off, BBVA would be expecting the entire four months of payments in one lump sum in order to avoid interest charges. Fortunately, he was able to get out in time in order to avoid a “remedy” that would have put him much farther behind than if he’d never signed up in the first place.
The Bank of Well-Being
Shortly after assuming majority control of Congress in 2018, MORENA introduced legislation to rein in the banking industry. “It is fundamental to protect the finances of Mexican families as well as of small and medium-sized businesses in an environment of financial voracity,” said Senator Bertha Alicia Caraveo Camarena as she presented the bill, going on to note that out of eighty-five thousand consumer complaints regarding the improper charging of commissions, the banks had only returned 13 percent of the total amount. Predictably, bank stocks took a tumble and, faced with opposition from the sector as well as from President Andrés Manuel López Obrador, the MORENA majority backed off. According to Senate majority leader Ricardo Monreal, work is currently underway on a modified version of the bill which they hope to pass in the fall session. But the fact that MORENA is working together with the banks on the changes means that legislation is likely to fall significantly short of what is needed.
In another area, the AMLO administration is taking more of a lead. In July 2019, the last public bank left standing, Bansefi, was converted into the Banco del Bienestar, or the “Bank of Well-Being.” In January of this year, the president announced the launching of a 10 billion peso (US$450 million) program to build 2,700 new branches of the bank, with special emphasis to be placed on rural and remote regions of the nation. Construction, as with a series of other programs, will be undertaken by the army. The bank will be offering a basket of basic services, including savings accounts linked to a debit card, commission-free ATMs, special accounts for children, investments in government bonds and certificates of deposit, money transfers, home mortgages, life insurance, and, crucially, the ability to receive remittances from abroad without expensive intermediaries such as Western Union.
These services are a start, and it is important that they be fully implemented. But in the absence of full-scale renationalization of the banks — a remote prospect in the current political climate — it is important for the Banco del Bienestar to avoid becoming simply the “poor neighbor” to the commercial banking system, picking up the slack of private banks while preserving their clutch on the financial services that shape the economy. And in order to do that, it must take the next step and democratize secure, low-cost access to credit. It is the restricted, chummy market for credit which maintains and consolidates the massive gap between rich and poor in Mexico; without cracking it open to allow public money to be used for the public good, no redistributive mechanism on its own will be sufficient. The privatization of Mexican banking and the socialization of its debt has made a national and international elite filthy rich; it’s time to pry open the vault.