Mexico Orders Banks To “Stress Test” For A Trump Victory
It’s official: Donald Trump is now a systemic threat.
As part of the Mexican stress test, alongside more traditional calamities such as recession, economic crisis, and market crash, the Mexican financial authorities have ordered local banks to assess the potential impact of Donald Trump winning the U.S. presidential election, Reuters reports. Citing six bank sources, Reuters says that alongside a “normal” annual stress test, the banks were asked to conduct an additional test to examine the macroeconomic effects and volatility resulting from a potential Trump victory on Nov. 8.
The local regulator, the Financial System Stability Board (CESF) said that as a result of the ongoing risk surrounding the U.S. election and an expected tightening in Federal Reserve monetary policy, it had examined the results of stress tests of the country’s financial system. “These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios,” the CESF, which includes representatives from the Finance Ministry, the Bank of Mexico and the banking regulator CNBV, said in its statement.
However, while the rest of the stress test is largely fluff, what Mexico really wanted to know is what happens to local banks if Trump becomes president in 19 days: as a result the tests “were specifically aimed at modeling the possible impact of a Trump victory over Democratic candidate Hillary Clinton, the latest example of the panic the Republican candidates campaign has induced in Mexico.“
Among other things, Trump has vowed to rewrite the North American Free Trade Agreement if he wins, and build a southern border wall that Mexico would pay for. Fears that Trump could take the White House have also weighed on the peso which is down nearly 8 percent so far this year. Trump was in Mexico City briefly in August for a highly contentious visit that led to widespread criticism of Mexican President Enrique Pena Nieto and helped precipitate the resignation of then finance minister Luis Videgaray, who was seen as the architect of the meeting.
Still, Mexico is far less nervous than it was just a month ago: one of the banking sources told Reuters that Trump’s recent collapse in the polls following a string of groping accusations had helped calm concerns that he might win. Of course, the reason why S&P futures traded limit down on the night of Brexit is because just like now, the outcome was taken for granted by all involved, with virtually all polls guaranteeing the preferable outcome.
It remains to be seen if Trump can repeat the Brexit shock.