This time round, it wouldn’t be just US banks that would be heavily exposed to the resulting fallout; so, too, would European lenders.
Last week was the week that the United States “put Mexico’s banks on the ropes.” So reads a headline from El País a few days ago. The Trump administration had just imposed economic sanctions against two small Mexican banks, Intercam (total assets: $7 billion) and CIBanco (total assets: $4 billion), and a brokerage house called Vector (total assets: $12 billion) for allegedly laundering the proceeds of the cartels’ fentanyl trafficking business.
Four months after officially designating Mexican drug cartels as terrorist organisations, the US has fired its first salvo of economic sanctions against its southern neighbour and largest trade partner. The sanctions are the Treasury Department’s first actions under Biden-era anti-fentanyl legislation that now gives US federal agencies additional powers to combat money laundering associated with this drug and other synthetic opioids.
“Financial facilitators like CIBanco, Intercam and Vector are enabling the poisoning of countless Americans by transferring money on behalf of cartels, making them vital cogs in the fentanyl supply chain,” Treasury Secretary Scott Bessent said in a press release. “Through the first use of this powerful authority, today’s actions affirm the Treasury’s commitment to using all tools at our disposal to counter the threat posed by criminal and terrorist organizations trafficking fentanyl and other narcotics.”
As the former long-time partner of Soros Fund Management, Bessent has had plenty of experience crashing banks and foreign currencies (h/t The Night Wind). Meanwhile, here’s former CIA agent and current US Ambassador to Mexico Ron Johnson “saluting the leadership” of acting US Assistant Treasury Secretary Anna Morris, who is “advancing the commitment of POTUS Donald Trump to dismantle narco-terrorist cartels”.
I salute the leadership of Acting Assistant Secretary of @USTreasury Anna Morris in advancing the commitment of @POTUS @realDonaldTrump to dismantle narco-terrorist cartels. Her work against money laundering is vital to disrupt the criminal networks that threaten the citizens of… pic.twitter.com/qVRVkt3dtI
— Embajador Ronald Johnson (@USAmbMex) June 25, 2025
The Treasury’s Financial Crimes Enforcement Network, or FinCEN, hit CIBanco, Intercam and brokerage Vector Casa de Bolsa SA with orders that essentially prohibit the entities from engaging in certain transfers of funds in the US as of July 15. The fallout, as intended, was rapid and brutal.
Within hours Fitch had downgraded the ratings of all three institutions and HR Ratings had downgraded the ratings of the two lenders. The brokerage house Vector announced the closure of its foreign exchange business. Predictably, institutional clients and investors began scrambling to pull their money out of the institutions, prompting Mexico’s banking regulator, the National Banking and Securities Commission, or CNBV, to temporarily step in to manage the three firms — “to safeguard the interests of customers, savers and investors”.
In pure damage limitation mode, the CNBV said in a statement that it had confidence in “the soundness and resilience of the Mexican financial system and will continue to work in ongoing coordination to foster its stability, integrity, and proper functioning.”
Edgar Amador Zamora, head of Mexico’s Ministry of Finance and Public Credit (SHCP), said that “Mexico’s banking system has not experienced any interruption, is operating normally and remains one of the most solid at the international level with capitalisation and liquidity ratios higher than those required by international standards, which allows the proper functioning of our financial markets.”
Whether this will be enough to calm market jitters and forestall a run on the two lenders, or other lenders in Mexico, time will soon tell. Meanwhile, the situation for the three banks affected continues to deteriorate. On Monday, Visa cancelled international transactions with CIBanco’s cards. Citi Group has taken steps to cut ties with CIBanco and Intercam. One silver lining is that the Mexico peso has not only remained firm against the dollar since the crisis began but has actually continued to strengthen.
As to the question in the title, the answer, I believe, is: not quite.
Washington is clearly trying to provoke a banking crisis in Mexico — indeed, has already achieved that goal — but it will presumably stop short of creating a full-blown one, assuming it can, for the simple reason that the resulting contagion could do serious harm to the US’ economy and financial sector. And if there is one thing Trump has so far proven to be somewhat sensitive to, it is the potential economic fallout of his policies.
“Nobody’s Piñata”
One thing that is clear is that Mexico’s Claudia Sheinbaum government and market participants are livid about the US’ latest intervention in Mexico’s affairs, particularly given the paucity of evidence presented against the three institutions to justify the imposition of sanctions and the way in which those sanctions were imposed.
In her morning press conference, Sheinbaum said her government had received a “confidential report” a few weeks ago from US authorities in relation to suspicions against the three institutions. But she claims that no concrete evidence was presented.
“We are not going to cover up for anyone. There is no impunity, but it has to be proven that, in fact, there was money laundering taking place. Not with words, but with conclusive evidence,” Sheinbaum demanded in her morning press conference on Friday. “We coordinate, we collaborate, but we do not subordinate ourselves. Mexico is a great country and the relationship with the US is one of equals, not of subordination. We are not anyone’s piñata.”
Sheinbaum was not alone in her opprobrium. Many Mexican economists and analysts have accused the US of breaking its own basic operational rules and standards as well as flagrant hypocrisy. They include Enrique Quintana, the vice-president and general editorial director of Mexico’s most respected financial newspaper, El Financiero, which is affiliated with Bloomberg. In an editorial piece Friday, Quintana lambasted the Trump administration for taking a political action against Mexico’s banks without presenting a shred of evidence:
In the statement from the Financial Crimes Control Network under the Department of the Treasury, it is indicated that Mexican institutions had participated, directly or indirectly, in the processing of operations linked to fentanyl.
However, no forensic evidence, verifiable financial traces, or documentary evidence have been presented to the Mexican authorities to support such allegations.
Moreover, the accused entities were not given prior notification or summoned to any joint review process or bilateral investigation mechanism, as set out in the protocols on financial cooperation and the fight against organised crime.
Instead, the Treasury Department opted for public ridicule without trial or defence, in a tactic that, more than justice, smacks of political pressure.
In other words, the US is once again riding roughshod over the basic rules of engagement. The irony, says Quintana, is that Mexico has actually strengthened its financial supervision mechanisms in recent years:
The National Banking and Securities Commission (CNBV), the Financial Intelligence Unit (UIF) and the Bank of Mexico have tightened controls on unusual movements, strengthened compliance processes in financial institutions and collaborated with international organizations to prevent operations with resources of illicit origin.
That said, it wouldn’t be hard for Trump’s anti-fentanyl taskforce to find Mexican banks and other financial institutions that are laundering the proceeds of fentanyl trafficking — especially given the preponderance of illicit money flows within Mexico’s economy, estimated to be worth more than 5% of GDP. But it would be just as easy, if not easier, to find US banks doing the same.
Another expert who sees political — or rather, geopolitical — motivations behind Washington’s latest salvo of economic sanctions is Rogelio Madrueño, a researcher at the Centre for Advanced Studies on Security, Strategy and Integration. Madrueño told El País that US actions should be framed as part of a strategic reconfiguration to confront its main global rival: China, and consequently use all the geo-economic instruments of its foreign policy to achieve strategic objectives (machine translated):
“In this context, there were already early warnings of a second wave of pressures in the field of money laundering, clearly aimed at the government of Mexico. In short, there is a real market, and it is potentially true. However, it is not a problem exclusive to Mexico, but regional and, in any case, it is being used as a tool of political pressure.”
The US is now demanding much closer surveillance of the 52 banks that make up Mexico’s banking system. According to El País, more than one bank is already reviewing its own anti-money laundering security protocols. Will that mean having to pay much closer attention to funds moving between Mexico and China and vice versa, which last year reached a record $132 billion?
In recent years, China has consolidated its position as Mexico’s second most important trading partner, accounting for 20% of the North American country’s total imports, up from 15% in 2015. Diplomatic relations between the two countries have also strengthened even as Mexico has bowed to US pressure and imposed some tariffs on Chinese goods. The US is determined to reverse this trend, and one way of doing that is to make it harder for Mexican companies to transact with their Chinese counterparts.
I suspect that one of the main reasons for the attack on Mexico’s banking system is simple power dynamics: put simply, Mexico, unlike Iran, Russia and China, is an easy target for Washington to hit. Whatever Sheinbaum may say, Mexico makes for an excellent piñata for the Trump administration, and arguably always has been for the US. And hitting it from time to time, whether figuratively or literally, may even bring electoral dividends among Trump’s base.
Another possible motive is to undermine political support for Mexico’s government, currently one of the most popular in Latin America, and drive a wedge between Sheinbaum and her presidential predecessor and mentor, Andrés Manuel López Obrador (aka AMLO).
As mentioned last week, the brokerage firm Vector is owned by the well-connected Mexican businessman Alfonso Romo, who served as former President Andrés López Manual Obrador’s point man with national and international business interests during AMLO’s first two years in power. Whether this will prove to be the long-sought smoking gun that ties AMLO to the drug cartels, allowing government agencies in Washington to build a legal case against the former president, remains to be seen.
Flagrant Hypocrisy
One thing that has not gone unnoticed in some quarters of the Mexican press is Washington’s more hands-off approach to US banks’ prolific laundering of drug cartels’ money.
Just five years ago, a wide-ranging investigation by the International Consortium of Investigative Journalists (ICIJ) called the FinCEN files revealed that many of the largest US and European banks, including JP Morgan Chase, HSBC and Deutsche Bank, had for almost two decades “defied money laundering crackdowns by moving staggering sums of illicit cash (over $2 trillion) for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.”
In 2009, when Wachovia was found to have failed to apply the proper anti-laundering strictures to the transfer of $378.4 billion into dollar accounts from so-called casas de cambio (CDCs) in Mexico in 2009, it paid a paltry $160 million fine.
When HSBC was caught a few years later engaging in similar behaviour, then-Attorney General Eric Holder (in the words of the US House Committee on Financial Services) “overruled an internal recommendation by DOJ’s Asset Forfeiture and Money Laundering Section to prosecute HSBC because of DOJ leadership’s concern that prosecuting the bank would have serious adverse consequences on the financial system,” giving birth to the Too Big to Jail moniker.
Then this happened in 2019:
Bankers just have a totally different set of rules they get to live by. "Ship seized in $1.3 billion cocaine bust is owned by JP Morgan Chase" https://t.co/LbZhj8eevx via @CBSNews
— Michael Arrington 🏴☠️ (@arrington) July 12, 2019
There are even indications that drug money essentially saved some big banks from ruin during the Global Financial Crisis. In 2010, the head of the UN Office on Drugs and Crime Antonio Maria Costa said he had seen evidence that the of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse. As Yves noted at the time, what the UN’s drug tzar was essentially saying was that the banks entered into the money-laundering business on a much greater scale than before as a matter of survival.
Indeed, it is in the US where the US Treasury Department has encountered by far the highest number of money laundering alerts linked to fentanyl trafficking, accounting for a staggering 95 out of 100 alerts issued. As the Mexican daily La Jornada reports, around $100 billion of illicit funds is estimated to flow each year from global drug trafficking operations into the US financial system, including from the entire supply chain of fentanyl sold in the country, including the Treasury Department’s own accounts.
Yet to date no US bank has been singled out by FinCEN or has even reported an investigation of the money flowing in and out of the country with the largest population of addicts. Instead, the focus is on two small Mexican lenders and a brokerage house.
A Dangerous Move
The good news for Mexico is that the two banks targeted by the sanctions are too small to pose a systemic risk. CI Banco has 214 branches in Mexico and $7 billion in assets while Intercam has 60 branches and $4 billion in assets. They barely account for 2% of the total assets of the Mexican banking sector between them, according to Forbes.
Nonetheless, their sudden take down has dented confidence in Mexico’s financial system, and confidence is supremely important for any banking sector. Other Mexican lenders — and their clients, investors and lenders — are presumably wondering they will be next.
Let’s be clear about one thing: this was an act of economic warfare.
It’s no coincidence that last Wednesday — the same day that FinCEN unveiled its sanctions against the Mexican financial institutions — US Attorney General, Pam Bondi, announced that the Trump administration was now treating Mexico as a “foreign adversary” — on a par with Iran, which the US just bombed; Russia, with which the US is locked in a proxy war in Ukraine; and China, the US’ strongest peer rival since the collapse of the Soviet Union.
“We will not be intimidated and we will keep America safe because of President Trump’s leadership. Not only against Iran, but also against Russia, China and Mexico,” Bondi said in response to questions by the chicken-hawk neo-con Senator Lyndsey Graham. “In the face of any foreign adversary, whether it tries to kill us physically or by overdosing our children with drugs, we will do everything in our power, thanks to his leadership, to keep America safe.”
Whether that includes provoking a full-blown financial crisis in Mexico, it is too early to tell. As I mentioned earlier, I don’t think that is the goal here. Given the potential levels of contagion risk, particularly (but not exclusively) for the US, it would be an insanely dangerous move.
However, the US may want Mexico’s economy to scream a little louder before relieving the pressure. It may even begin targeting Mexican businesses outside the financial sector. As an article in Expansión notes, that could include perfectly legal businesses that happen to pay the cartels extortion fees — the so-called “cobro de piso” (stall fee) — in order to be able to operate without getting whacked, which US authorities could consider as terrorism financing:
“The vast majority of the people who are being extorted by these groups are micro-entrepreneurs and here the problem is that many have accounts in certain banks, so here the problem is that a precedent can be established,” (says Alberto Guerrero Baena, a consultant in security policy)…
María de los Ángeles Estrada, director of the Transparency and Anti-Corruption Initiative at Tec de Monterrey, stresses that, legally, the designated cartels are already terrorist groups in the United States, so any individual or legal entity that “helps” these organizations is liable to face civil or criminal charges:
“It is important to know that there are risks, for example, for these companies (such as lemon or avocado growers) of being included on the US government’s blacklists. And getting off that blacklist is very difficult.”
So, those companies and people who are extorted by drug traffickers and specifically by those cartels considered terrorist groups may be considered supporters of terrorists. There are several risks for these people.”
Regarding the implications of the Treasury Department’s orders against the three financial institutions, the specialist considers that they are “really serious,” especially at the level of confidence.
“They are making it clear that the controls that exist in Mexico imposed by the CNBV, by the UIF, by the Treasury, are not really enough and that will generate effects in the short and medium term on the economic side,” she says.
“Basically, what this situation is going to generate is a loss of confidence at the national and international level (…) not only in those banking and financial institutions, but in the Mexican financial system as a whole, because there are few controls.”
This loss of confidence will further compound the economic damage already caused by Trump’s constant threats of tariffs, mass deportations, military intervention, and taxes on remittance payments, which became a reality a couple of months ago. Even though most of the tariffs have yet to be implemented for any meaningful length of time, they have already caused acute economic uncertainty regarding the world’s largest trade partnership.
If Mexico were to be pushed over the edge into a full-blown financial crisis, which I don’t believe is the ultimate goal here due to the implicit risks involved (but I may be wrong), it could have two major boons for the US government and its kleptocratic backers.
First, it would presumably result in a massive fire-sale of Mexican assets, including its lithium, oil, gas, gold and silver. Second, the inevitable IMF bailout could help bring the country’s semi-populist and broadly popular government more firmly under US control and away from Chinese influence. It’s worth noting that three of the Latin American countries most slavishly aligned with the US right now, Argentina, Ecuador and El Salvador, all have unpaid debts with the Fund.
Sheinbaum, like AMLO, insists she would never accept the structural conditions that come with IMF bailouts, but that’s easy to say when you’re not in the grip of a full-fledged banking crisis. But all of that would come at the price of significantly weakening the economy the US arguably most depends on. And if recent history is any indicator, the fallout from a full-fledged banking crisis in Mexico would bleed far beyond its borders, creating problems not only for governments but also for banks.
When, in August 1982, Mexico’s then-Finance Minister, Jesús Silva-Herzog, declared that Mexico was defaulting on its dollar-denominated tesobono bonds, it sparked the beginning of the Latin American debt crisis, which almost brought down many of Wall Street’s finest. As Nicholas Taleb notes in Black Swan, the losses that US bankers sustained on their LatAm bets were catastrophic. It was only through the recycled loans the IMF made to Latin American countries that the US banks were able to stave off collapse.
It was a similar story in the Tequila Crisis of 1994, which culminated in a massive joint bail out of Mexico’s financial system by the Clinton administration, the IMF and the Bank for International Settlements. Once again, the real beneficiaries were the US banks, brokerage firms, pension funds and insurance companies that had gone all-in on short-term Mexican debt. Left holding the tab were generations of Mexican taxpayers.
The contagion risks of a full-blown Mexican financial crisis are, if anything, greater today than in the past, for two simple reasons:
- Mexico is a larger, more open, more globalised economy than it was in the early ’80s or mid ’90s — in fact, the Mexican peso is the world’s third most-traded currency among emerging markets (after the Chinese renminbi and Indian rupee);
- Thanks to the mass buy out of Mexican banks in the wake of the Tequila Crisis, all bar one of Mexico’s big lenders are now owned by foreign banks — namely Spain’s two giant lenders, BBVA (#1) and Santander (#2); Citigroup (#3), which bought the retail lender Banamex in 2001; in late 2024 it separated Banamex from its institutional banking business in Mexico as it prepared to list Banamex on the stock exchange; Scotiabank (#5) and HSBC (#6). The only large domestic lender is Banorte (#4).
In other words, if the current US government were, wilfully or not, to provoke another full-fledged banking crisis in Mexico, it wouldn’t be just US banks that would be splattered by the resulting fallout; so, too, would European lenders.
Let’s not forget that Scott Bessent was CFO of Soros’ Hedge Fund for over thirty years. He’s had experience crashing banks and foreign currencies.
Very good point, Night Wind, which I’ve now included in the piece alongside a wee hat-tip to your good self.
Not that it will happen but I wonder what would happen if the Mexican government took over each bank targeted by the Trump regime – and converted it into a public utility. Yeah, a real radical idea but do all banks have to be run as a private for profit entity? History says absolutely not. Obviously this is the Trump regime trying for regime change here here but using finance rather than bombs. But they can’t go too far or else Mexico would pull all its troops from the US-Mexico border and just open it up to all and sundry. Bombing Mexico would have the same effect. Maybe the US wants to bring about a fire-sale Mexico to snap up all it’s assets on the cheap and turn it into a 1990s Russia – though with sombreros – but there is no guarantee that Mexico might state that offers from Chinese firms would be prioritized over US ones so Chinese investment would be bigger than ever.
When, in August 1982, Mexico’s then-Finance Minister, Jesús Silva-Herzog, declared that Mexico was defaulting on its dollar-denominated tesobono bonds, it sparked the beginning of the Latin American debt crisis, which almost brought down many of Wall Street’s finest. As Nicholas Taleb notes in Black Swan, the losses that US bankers sustained on their LatAm bets were catastrophic. It was only through the recycled loans the IMF made to Latin American countries that the US banks were able to stave off collapse.
~~~~~~~~~~~~~~
Unabankers kept the Mexican hyperinflation going for over a decade, one of the longest financial farewell skeins you’ll see.
The numbers are way different than Weimar’s highfalutin hyperinflation, but in the end a Peso bought 1/264th in Dollar terms by the time the New Peso was introduced. it wiped out savers and started the great immigration north, as domestic jobs paid in ever decreasing in value Pesos.
If you’ll allow me to get on my high horse, a Mexican Peso was equal in value to a Dollar just a little over a century ago…
https://en.numista.com/catalogue/pieces8294.html
thanks for the info
My speculation:
It does appear that the usa has basically declared war on Mexico. The country is being lumped in with China (not much different from Russia in mainstream media rhetoric), Russia itself (totally sanctioned and cut off from the usa and eu economies at this point) and Iran (just bombed for 12 days and also subject to long term sanctions). The attack on Mexico does seem fairly predictable given the huge gulf between the usa and Mexico in terms of the current parties in power. Mexico is presenting an alternative to neoliberalism while the usa is trying to stamp out the last bits of the new deal that are left. The first step is the huge tax cut for billionaires, and a huge tax increase in the form of import taxes which, not surprisingly, hit the poorest the most.
Thus far Sheinbaum had avoided a big blow up with Trump. Trump would, I suspect, love a collapse of the Mexican economy creating a huge buying opportunity. Those assets can be bought for cheap, from eu banks…among others. However he has appeared unable to stand the heat too long. If there is a full blown conflict and financial crisis I’d expect Trump to probably cave but maybe after its too late – after contagion had spread to the eu and back home to the big banks in NYC.
I’m surprised that Citi’s purchase of Banamex in ’01 didn’t warrant a mention.
It’s briefly mentioned in the penultimate paragraph. Given that Citi has essentially hived Banamex off from its institutional banking business in Mexico and is preparing to launch the retail bank on the stock exchange, its exposure to Mexico is probably somewhat lower these days.
Thanks for the excellent report or should one say heads up? I may have to add a cash vault to the upcoming bomb shelter in the back yard.
A conceit of Coppola’s Godfather films was to treat the mafia as a metaphor for American society or at least the power relations therein. The theme is taken up in a new and I think very good Barry Levinson film, The Alto Knights.
https://en.wikipedia.org/wiki/The_Alto_Knights
DeNiro is in the dual roles of real life characters Frank Costello and Vito Genovese who were childhood friends. Costello runs the mob during the post WW2 period and then finds himself under attack when the hotheaded Genovese returns from exile in Italy. Genovese’s rash violence brings the Mafia out in the open and ultimately leads to its decline. It’s pretty clear which presidential character and enemy of DeNiro is represented by the latter. With their NY accents the characters in the movie even talk like Trump.
Maybe it has always been like this including when Obama foamed the runways but it helps when we innocents in the sticks know what’s going on. Thanks again.
Those statements by Bondi sound a lot like old fashioned ‘Fearless Leader’ speak.
“We will not be intimidated and we will keep America safe because of President Trump’s leadership.”
And, “we will do everything in our power, thanks to his leadership, to keep America safe.”
This is purely and simply the “Orange Fuhrer Prinzip” in action.
Politically, America is officially a Third World Country today.
If some sort of financial crisis does erupt in Mexico in the near future, what better way to give the middle finger to El Norte than to grant the Chinese Navy port rights in the Gulf of California in exchange for financial help? Having a big Chinese military base a hundred miles from America’s southern border would be the perfect move to make.
Stay safe.
A large chunk of the money cycling through Trump’s real estate, including in his dealings with Deutsche Bank, must surely wash in from the drug trade?
I’ve long thought that if a more enterprising Fifth Estate had looked into just where that money does come from, we might have kept Trump out of office in the first place. But if 3 trillion dollars a year owes to illicit flows globally, who’s looking very closely?
But isn’t Washington trying to provoke a banking crisis in *every* other country? One expects negotiators to be mindful of their self-interest, but Washington has long held the self-interest of others in contempt. This is a trait Washington inherited from Britain. It is one of the banalities of Empire.
The plan is always to induce a fire sale in which the compradors of the princes of the empire will sell out their colonial ‘compatriots’ for pennies on the dollar.
The best technique is to screw the weaker partner with a smile. That was Obama’s style, but he had Hillary to play bad cop. Trump doesn’t smile, so I guess the face role now falls to Little Marco.
While the US government is exhibiting disregard and contempt for Mexico and hypocrisy regarding its own banks I don’t see why an attack on several small financial companies operating in Mexican pesos in Mexico would trigger a financial crisis. Mexico has its own currency and central bank so the government has the ability to take over any Mexican financial institution that gets into trouble regardless of its size, stabilize it, and make all depositors whole.
Where I think Mexico is vulnerable is in its large loans in US dollars (USD). Doing a quick search I found it owed 623 billion USD. Perhaps the actual number is higher but that’s what I found in a quick search and it is already large enough to potentially be a real problem if the peso/USD exchange rate drops significantly. The article reports that fortunately the peso has appreciated against the USD (as have many other currencies) so for the time being that is not an issue.
A drop in the exchange rate could be triggered if Mexican and/or foreign investors sold off their peso denominated financial assets and exchanged them for USD (most likely). I have no idea how likely that is nor how likely it is that the Mexican government would stop the capital flight by imposing capital controls.
Another great piece Nick. I have witnessed first hand the unnecessary chaos this move has created for local businesses and foreign residents and investors here in our region. The sanctions on Intercam in particular have left many people scrambling for an alternative bank for moving and distributing funds. Unfortunately, the big foreign affiliated banks here have completely mastered the art of customer non-service and creating draconian speed bumps to efficient banking.