Cross-border banking regulations cost nearly $40B in GDP

The Texas Association of Business and the National Bankers Association released an econometric report on the unintended adverse economic and social effects that current U.S. anti-money laundering and combatting financial terror regulations have had on cross-border correspondent banking relationships between the U.S. and Mexico.

The report, authored by former Under Secretary of Commerce for Economic Affairs Dr. Robert J. Shapiro, found that misplaced emphasis of U.S. AML/CFT regulations and enforcement on correspondent banking, with particular attention to transfers between the United States and Mexico, contributed to a cumulative U.S. GDP loss of $38.3 billion, approximately $5.5 billion per year, between 2012 and 2018.

Econometric analysis documents the following economic effects of the current misplaced regulation of the correspondent banking market:

  • The impact of AML/CFT regulation of correspondent banking on FDI from Mexico to the U.S. was associated with slowing GDP growth by about $5.6 billion per year and slowing employment gains by an estimated 40,728 jobs in a given year from 2012 to 2018.
  • The constriction of the correspondent banking market reduced Mexican FDI flows to the United States by an estimated $477 million per-year from 2012 to 2018 and reduced the estimated stock of FDI in the United States over those years by nearly $3.3 billion.
  • These same declines in correspondent banking are associated with an estimated $1.4 billion reduction in the U.S. stock of FDI in Mexico.
  • These effects depressed U.S. employment growth by an estimated 285,100 positions from 2012 to 2018, or an average of 40,730 jobs per-year.

Dr. Shapiro’s report found that current AML/CFT regulations are costly, ineffective and misplaced, significantly impacting foreign direct investment and trade between the two countries. Dr. Shapiro and his team applied a novel, econometric model to analyze the impact of such regulations.

He believes these ineffective regulations restrict the services Mexican correspondent banks can provide and limit the flow of cash remittances in and out of the country. 

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