For more than half a century, U.S. companies were restricted from conducting any business with Cuba, and constraints on travel were imposed as well. However, on Wednesday, President Obama took a historic step by re-establishing diplomatic relations with Cuba. Also, a series of other actions, intended to ease travel and trade restrictions, were announced.
Specifically, removal of sanctions will help the U.S businesses in setting up operations in Cuba. The industries that are likely to benefit include tourism, agriculture, telecommunication and finance.
For banks that are facing pressure to improve growth in the domestic markets, opening up of Cuban economy is expected to be a boon. So major banks like JPMorgan Chase & Co. (JPM – Analyst Report), Bank of America Corp. (BAC – Analyst Report), Citigroup Inc. (C – Analyst Report), Capital One Financial Corp. (COF – Analyst Report) and Wells Fargo & Co. (WFC – Analyst Report) are expected to benefit by grabbing opportunities in Cuba. Â
Now the question is that whether the U.S. banks will be interested in conducting business at Cuba? Let us delve into the details and find out the possibilities.
Key Changes for Banks
According to the White House press release, following are the updated policy changes for banks that intend to open offices in Cuba:
- U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions.
- The regulatory definition of the statutory term “cash in advance†will be revised to specify that it means “cash before transfer of title;†this will provide more efficient financing of authorized trade with Cuba.
- U.S. credit and debit cards will be permitted for use by travelers to Cuba.
- These measures will improve the speed, efficiency, and oversight of authorized payments between the U.S. and Cuba.
How Are U.S. Banks Considering this Change?
While removal of ban is a positive signal, many trading groups are skeptical about the growth of Cuban business ties for banks. Currently, banks are waiting to see the full text of the new regulations before taking the plunge.
Notably, finding out how to implement these new rules might not be worthwhile for the banks, owing to the substantial amount of penalty that they will be compelled to pay in case of breaking the same. Rob Rowe, a lawyer with the American Bankers Association, stated, “I know that when restrictions were lifted on Myanmar/Burma, many banks decided that the rules were so complex and the penalties…were so significant that it didn’t make sense to go all out with business to that country.”
So the same thing could happen over Cuba too. In recent years, the U.S. regulators have taken a tough stance against banks that violated sanctions.
Now that Cuba is not under sanction, these penalties might not crop up. However, the complex rules and regulations may deter banks from doing business in Cuba. Nevertheless, only over time will we realize whether Cuban economy can be lucrative enough for banks to forgo the tough regulations.
