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These Are the Good Old Days: Foreign Entry and the Mexican Banking System

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  • Stephen H. Haber
  • Aldo Musacchio

Abstract

In 1997, the Mexican government reversed long-standing policies and allowed foreign banks to purchase Mexico's largest commercial banks and relaxed restrictions on the founding of new, foreign-owned banks. The result has been a dramatic shift in the ownership structure of Mexico's banks. For instance, while in 1991 only one percent of bank assets in Mexico were foreign owned, today they control 74 percent of assets. In no other country in the world has the penetration of foreign banks been as rapid or as far-reaching as in Mexico. In this work we examine some of the important implications of foreign bank entry for social welfare in Mexico. Did liberalization lead to an increase (or decrease) in the supply of credit? Did liberalization lead to an increase (or decrease) in the cost of credit? Did liberalization lead to an increase (or decrease) in the stability of the banking system? In order to answer these questions, we must first ask, "increase (or decrease), measured on what basis?" There are, in fact, two distinct conceptual frameworks through which one can assess the impact of foreign bank entry. One is concerned with measuring the short-run impacts of foreign entry on credit abundance, pricing, and observable stability using reduced form regressions. The other is an institutional economics conception of how to measure performance. It is focused on understanding whether foreign entry gave rise to difficult-to-reverse changes in the political economy of bank regulation, which will affect competition and stability in the long term, outside the period that may be observed empirically. We employ both conceptions in this paper.

Suggested Citation

  • Stephen H. Haber & Aldo Musacchio, 2013. "These Are the Good Old Days: Foreign Entry and the Mexican Banking System," NBER Working Papers 18713, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18713
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sara G.Castellanos & Jesus G. Garza-Garcia, 2013. "Competition and Efficiency in the Mexican Banking Sector," Working Papers 1329, BBVA Bank, Economic Research Department.
    2. Barros, Carlos Pestana & Williams, Jonathan, 2013. "The random parameters stochastic frontier cost function and the effectiveness of public policy: Evidence from bank restructuring in Mexico," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 98-108.
    3. Allison F Kingsley & Benjamin A T Graham, 2017. "The effects of information voids on capital flows in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(3), pages 324-343, April.
    4. Maria Stella Chiaruttini, 2013. "Features of tertiarisation in the developed economies and worldwide offshoring," ERSA conference papers ersa13p399, European Regional Science Association.

    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • N46 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Latin America; Caribbean

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