link to page 1 link to page 1 
Updated February 6, 2018
The North American Development Bank
Introduction
$133.23 million in 2015, which increased gross outstanding
The North American Development Bank (NADB) is a
debt to a total of $1.19 billion.
binational financial institution created and funded by
Mexico and the United States. The NADB provides loans
Lending
and grants to public and private entities for environmental
During the Bank’s early years, much of its lending capacity
and infrastructure projects on both sides of the U.S.-Mexico
went underutilized. In the Bank’s first decade (1994-2004),
border. Modeled after the multilateral development banks
outstanding loans remained below $100 million. In 2000,
(MDBs), such as the World Bank, the NADB is the only
the NADB Board expanded the range of projects that the
development bank that also finances projects in the United
NADB could invest in beyond water and solid-waste
States.
management into a wide range of environmental
infrastructure projects. In 2004, President Bush signed
Origins and Mandate
legislation (P.L. 108-215), that authorized NADB to expand
The NADB was created under the auspices of the North
its geographic jurisdiction and make grants and non-market
American Free Trade Agreement (NAFTA) in 1994,
rate loans out of its paid-in capital resources with the
through a binational side agreement between the United
approval of the Board.
States and Mexico. It was created to address some
policymakers’ concerns that NAFTA could worsen
Since 2011, NADB loans have increased sharply (Figure
environmental conditions in the border region by increasing
1). During 2016, new loans totaling $96.88 million were
economic activity there.
approved for four projects. As of the end of 2016, the
outstanding loan balance was $1.41 billion, an increase of
The NADB’s financing activities initially focused on
6.5% over the balance at the end of 2015 ($1.32 billion).
projects related to water supply, wastewater treatment, and
municipal solid waste disposal. In recent years, the NADB
Figure 1. NADB Outstanding Loans: Over Time and
expanded its financing activities to include air quality, such
By Sector
as financing the development of wind farms for the
generation of electricity.
NADB eligible projects must be located within 100
kilometers (about 62 miles) north of the U.S.-Mexico
international boundary in the U.S. states of Texas, New
Mexico, Arizona and California or within 300 kilometers
(about 186 miles) south of the border in the Mexican states
of Tamaulipas, Nuevo Leon, Coahuia, Chihuahua, and
Sonora. Projects beyond these limits may be deemed
eligible under certain conditions and subject to approval by
the NADB’s Board of Directors.
Funding
As of the end of FY 2016, the NADB had $2.77 billion in
total capital. Of that amount, $415 million is paid directly to
NADB (“paid-in” capital) and $2.35 billion is a guarantee
from donor governments to the Bank (“callable” capital).
Like the MDBs, callable capital may be called if and when
required to meet the Bank’s debt or guarantee obligations,
Source: Created by CRS from NADB Annual Reports.
subject to certain procedural requirements, and may not be
used to make loans.
In recent years, the Bank’s portfolio has become
concentrated in wind and solar energy projects. In 2016,
The NADB leverages its financial position by issuing debt
wind and solar loans accounted for over 70% of the
in international capital markets in accordance with a debt
NADB’s outstanding loan portfolio. In addition, the NADB
limit policy that total debt outstanding may not exceed the
invested heavily in 2016 in public transportation, which
Bank’s callable capital account plus the minimum liquidity
grew from $3.69 million in 2015 to $31.87 billion in 2016.
level required under the Bank’s liquidity policy. The Bank
While the NADB provides loans to nine of the ten states
borrowed a total of $2.22 million in 2016 compared to
allowed by its mandate, the top three states in which it
lends, Texas, California, and the Mexican state of
https://crsreports.congress.gov
The North American Development Bank
Tamaulipas, account for 58% of the NADB’s portfolio
projects are geographically constrained to the border region
(Figure 2). In total, 56.2% of outstanding NADB lending is
and targeted in specific sectors.
in Mexico, compared to 43.8% in the United States.
According to the Bank, NAD lending in Mexico covers a
Issues for Congress
broader area of sectors than in the United States, where
Implementation of the capital increase at the NADB would
borrowers have access to more financing options.
require congressional approval in both Mexico and the
United States. Mexico has already allocated funds for the
NADB Governance Structure
capital increase, including an initial contribution of $10
The NADB works closely with Border Environment
million in 2016. aThe U.S. Congress is considering the
Cooperation Commission (BECC), created concurrently
Administration’s request for authorization and funds to
with the NADB. Originally separate organizations, the two
participate in the capital increase.
organizations merged in 2017. Whereas the NADB focuses
One concern may be the strength of the NADB’s finances.
on project financing and oversight for project
In 2014, Moody’s, a major credit rating agency,
implementation, the BECC focuses on technical,
downgraded its assessment of the NADB’s
environmental, and social aspects of project development.
creditworthiness. The downgrade was linked to a change in
Before a project can be financed by NADB, it must be
Moody’s methodology that placed more weight on
certified by the BECC as technically and financially
geographic concentration risk, but Moody’s also flagged the
feasible. The NADB and BEEC are governed by a ten-
concentration of NADB lending in a relatively small
member Board of Directors with equal U.S. and Mexican
number of specific projects. In the two years preceding the
representation on the Board. The chairmanship alternates
downgrade, the 10 largest loan exposures accounted for
between the United States and Mexico each year. All
75% of the total portfolio. Moody’s also expressed
powers of the NADB are vested in the Board of Directors,
which determines policy and approves the Bank’s programs
concerns about a deterioration of the Bank’s asset quality,
as lending shifted from primarily the Mexican public sector
and financing proposals involving NADB funds.
to the U.S. private sector. Lending to Mexico fell to less
Figure 2. NADB Outstanding Loans: 2015-2016
than 40% and the end of 2012, from 80% on average
(Millions of USD)
between 1998 and 2011. Exposure to the private sector
grew to over 65%, from 19% in 2011.
The proposed capital increase has also raised policy debate
about the future of the NADB more broadly. Some analysts
question the continuing need for NADB financing two
decades after NAFTA was created, and whether it is
crowding out private sector financing. Other analysts argue
that the NADB is critical to supporting needed
environmental and infrastructure projects in the border
region that would not be otherwise funded by private
investors. Some analysts further call for the NADB to
expand its activities for the border region and all of Mexico.
Legislation Action
For FY2016, the Administration requested authorization to
participate in the NADB’s capital increase and requested
$45 million for paid-in capital and $255 million for callable
capital, as the first of five installments for the U.S. portion.
The Consolidated Appropriations Act, 2016 (P.L. 114-113)
did not include the requisite authorization language for U.S.
Capital Increase
participation in the capital increase. It did, however, allot
In January 2015, then-President Obama and Mexican
$10 million for paid-in capital and $255 million for callable
President Enrique Peña Nieto agreed to support a doubling
capital to the NADB to remain available until expended,
of the NADB’s capital base, from $3 billion to $6 billion,
meaning these funds will be available for the increase if
subject to the necessary legislation and availability of
Congress authorizes it at a later date. For FY2017, the
appropriations. The capital increase requires $450 million
Administration again requested authorization for U.S.
in paid-in capital and $2.55 billion in callable capital, split
participation in the NADB capital increase, as well as funds
equally between both countries. This would be the first
for the second installment of the U.S. portion. No funds
capital increase at the Bank since it was created and is
were authorized or appropriated in FY2017 and the Trump
motivated by the Bank’s substantial increase in lending
Administration made no NADB request in its FY2018
over the past five years, which has strained its capital
budget.
adequacy ratios.
Rebecca M. Nelson, Specialist in International Trade and
Additionally, a change in credit rating agency methodology
Finance
requires the NADB to maintain higher capital adequacy
Martin A. Weiss, Specialist in International Trade and
ratios than other MDBs. NADB financing is more
Finance
concentrated than other MDBs, because by mandate
IF10480
https://crsreports.congress.gov
The North American Development Bank
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF10480 · VERSION 3 · UPDATED