Mexico’s richest man, one of the richest men in the world, Carlos “Slim” Helu, was on CNBC the other day claiming that Mexico’s banks and overall financial system are in excellent shape, especially when compared to the still troubled state of many American banks.
Meanwhile, three of the four biggest banks in the world are headquartered in China.
The increasing prominence of foreign banks begs the question:
Would you buy a jumbo CD from a Mexican bank? Or a Chinese bank?
If not, why not?
Jumbo CDs Express a Desire for Perfect Safety
The question about buying CDs from Mexican banks is a bit misleading because the great majority of Mexican banks are actually foreign-owned. Banorte, founded in 1899, is the only large Mexican bank that’s not foreign-owned.
Nevertheless, it is clear that many conservative investors would not choose to purchase jumbo CDs from banks that operate primarily in Mexico–even if the rate on that CD was higher than competing offers.
This reluctance is no doubt partly cultural (the kidnappings don’t help, for instance). Also important, though, is the fact that the banking system in Mexico does not benefit from the protection of an ironclad guarantee like FDIC insurance. China’s banking system, likewise, does not enjoy an FDIC-level degree of consumer protection.
When you buy a jumbo CD, you want a sure thing.
American banks, or at least banks that abide by America’s myriad rules and regulations, remain, for the moment, the best place for that.
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