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

101 Pages Posted: 18 Jan 2013  

Stephen Haber

Stanford University - Hoover Institution and Political Science

Aldo Musacchio

Brandeis University- International Business School; National Bureau of Economic Research

Date Written: January 2013

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

Haber, Stephen and Musacchio, Aldo, These are the Good Old Days: Foreign Entry and the Mexican Banking System (January 2013). NBER Working Paper No. w18713. Available at SSRN: https://ssrn.com/abstract=2202651

Stephen H. Haber (Contact Author)

Stanford University - Hoover Institution and Political Science ( email )

Stanford, CA 94305
United States

Aldo Musacchio

Brandeis University- International Business School ( email )

415 South Street MC 32
Waltham, MA 02454-9110
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/aldo_musacchio

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