Updated November 4, 2019
The North American Development Bank
Introduction
The capital increase is motivated by the Bank’s substantial
The North American Development Bank (NADB) is a
increase in lending over the past five years, which has
binational financial institution created and funded by
strained its capital adequacy ratios. Additionally, a change
Mexico and the United States. The NADB provides loans
in credit rating agency methodology requires the NADB to
and grants to public and private entities for environmental
maintain higher capital adequacy ratios than other MDBs.
and infrastructure projects on both sides of the U.S.-Mexico
NADB financing is also more concentrated than other
border. Modeled after the multilateral development banks
MDBs, because, by mandate, projects are geographically
(MDBs), such as the World Bank, the NADB has a unique
constrained to the border region and targeted in specific
environmental focus and is the only development bank that
sectors. The proposed capital increase has also raised policy
also finances projects in the United States.
debate about the future of the NADB more broadly. Some
analysts question the continuing need for NADB financing
Origins and Mandate
two decades after NAFTA was created, and whether it is
The NADB was created under the auspices of the North
crowding out private sector financing. Other analysts argue
American Free Trade Agreement (NAFTA) in 1994,
that the NADB is critical to supporting needed
through a binational side agreement between the United
environmental and infrastructure projects in the border
States and Mexico. It was created to address some
region that would not be otherwise funded by private
policymakers’ concerns that NAFTA could worsen
investors. Some analysts further call for the NADB to
environmental conditions in the border region as economic
expand its activities beyond the border region and to all of
activity increased. The NADB’s financing activities
Mexico.
initially focused on projects related to water supply,
wastewater treatment, and municipal solid waste disposal.
Lending
In recent years, the NADB expanded its financing activities
During the Bank’s early years, much of its lending capacity
to include air quality, such as financing the development of
was underutilized. In the Bank’s first decade (1994-2004),
wind farms for the generation of electricity.
outstanding loans remained below $100 million. In 2000,
the NADB Board expanded the range of projects that the
NADB-eligible projects must be located within 100
NADB could invest in beyond water and solid-waste
kilometers (about 62 miles) north of the U.S.-Mexico
management into a wide range of environmental
international boundary in the U.S. states of Texas, New
infrastructure projects. In 2004, President George W. Bush
Mexico, Arizona and California, or within 300 kilometers
signed legislation (P.L. 108-215), that authorized the
(about 186 miles) south of the border in Mexico. Projects
NADB to expand its geographic jurisdiction and make
beyond these limits may be deemed eligible under certain
grants and non-market rate loans out of its paid-in capital
conditions and subject to approval by the NADB’s Board of
resources with Board approval.
Directors.
Figure 1. NADB Outstanding Loans: Over Time and
Funding
By Sector
In January 2015, then-President Obama and Mexican
President Enrique Peña Nieto agreed to support a doubling
of the NADB’s capital base, from $3 billion to $6 billion,
subject to the necessary legislation and availability of
appropriations. The proposed capital increase requires an
additional $450 million in paid-in capital and $2.55 billion
in callable capital, split equally between both countries.
Both countries have pledged to take their individual paid-in
capital to a total of $450 million by 31 December 2022,
however, only Mexico has made an initial contribution of
$10 million. Mexico’s total paid-in capital was $235
million, while the US’s total paid-in capital was $225
million as of December 31, 2018.
Like other MDBs, callable capital may be called if and
when required to meet the Bank’s debt or guarantee
obligations, subject to certain procedural requirements, and

may not be used to make loans. The NADB leverages its
Source: Created by CRS from NADB Annual Reports.
position by issuing debt in international capital markets.

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link to page 1
The North American Development Bank
NADB approved $138.1 million in financing in 2018. This
environmental, and social aspects of project development.
included $131.7 million in loans, $4.1 million in grants, and
Before a project can be financed by NADB, it must be
$2.3 million in technical assistance. Since 2011, NADB
certified by the BECC as technically and financially
loans increased sharply through 2016 due to substantial
feasible. The NADB and BEEC are governed by a ten-
growth in wind and solar investments, declining moderately
member Board of Directors with equal U.S. and Mexican
in 2017 and 2018 (Figure 1). According to Moody’s,
representation on the Board. The chairmanship alternates
consolidation in the renewable energy sector led to lower
between the United States and Mexico each year. All
interest costs and greater availability of financing
powers of the NADB are vested in the Board of Directors,
alternatives. As a result, firms that had borrowed from the
which determines policy and approves the Bank’s programs
NADB were able to secure alternative financing and prepay
and financing proposals involving NADB funds.
their outstanding NADB loans. Energy sector and
environment sector loans recovered in 2018. Environment
U.S. Legislative Action
sector loans, however, have continued to decline. NADB
In FY2016 and FY2017, the Obama Administration
reported to Moody’s that it expects loan growth of 12% in
requested authorization for U.S. participation in the capital
2019 before moderating to 6% in 2020 and lower in
increase, up to $1.5 billion to meet the U.S. share
subsequent years.
(contributions were pledged to be split evenly between the
two countries). While recent appropriations bills have
In recent years, the Bank’s portfolio has become
provided some funding toward the U.S. contribution to the
concentrated in wind and solar energy projects. In 2018,
NADB capital increase, they have not included the requisite
wind and solar loans accounted for 77% of the NADB’s
authorization for U.S. participation. Specifically, the
outstanding loan portfolio. Public transport, by contrast,
Consolidated Appropriations Act, 2016 (P.L. 114-113) did
accounted for only 3% of the outstanding loans.
not include the requisite authorization language for U.S.
participation in the capital increase. It did, however, allot
While the NADB provides loans to nine of the ten states
$10 million for paid-in capital and $255 million for callable
allowed by its mandate, the top three states in which it
capital to the NADB to remain available until expended.
lends, Texas, and the Mexican state of Tamaulipas, account
for 58% of the NADB’s portfolio (Figure 2). In total,
For FY2020, the Trump Administration is requesting
56.2% of outstanding NADB lending is in Mexico,
authorization for the $10 million appropriated toward the
compared to 43.8% in the United States. According to the
U.S. contribution to the NADB in FY2016. A contribution
Bank, NADB lending in Mexico covers a broader area of
of this amount would match the 2016 contribution paid in
sectors than in the United States, where borrowers have
by Mexico. The House has not included the funding in its
more financing options.
version of the FY2020 State, Foreign Operations, and
Related Programs measure (H.R. 2839), but the $10 million
Figure 2. NADB Outstanding Loans, Millions of USD
authorization is included in the Senate bill (S. 2583).
On January 3, 2019, a bipartisan group of Texas
representatives introduced H.R. 132, the North American
Development Bank Improvement Act of 2019. In addition to
authorizing U.S. participation in the capital increase, the
bill directs the executive branch to pursue various policy
reforms. These include targeting certain sectors, such as
natural gas and construction of new international land
border crossings. In addition, the legislation seeks to require
the NADB to “develop and implement efficiency
improvements to streamline and accelerate the project
certification and financing process.” H.R. 132 was reported
out of the House Financial Services Committee on
September 20, 2019. A companion bill, S. 267 has been
referred to the Senate Committee on Foreign Relations.
A separate authorization bill was introduced in the House,
H.R. 3895, the North American Development Bank's
Pollution Solution Act, which would, in addition, establish a
$400 million trust fund at the NADB to finance
Source: NADB Annual Report, 2018.
environmental infrastructure projects along the border. H.R.

3895 has been referred to the House Financial Services
NADB Governance Structure
Committee.
The NADB works closely with the Border Environment
Cooperation Commission (BECC), created concurrently
Martin A. Weiss, Specialist in International Trade and
with the NADB. Originally separate entities, the two
Finance
organizations merged in 2017. Whereas the NADB focuses
IF10480
on project financing and oversight for project
implementation, the BECC focuses on technical,
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The North American Development Bank


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https://crsreports.congress.gov | IF10480 · VERSION 4 · UPDATED

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