The relationship between bank competition and financial stability: a case study of the Mexican banking industry

Raúl Osvaldo Fernández, Jesús G. Garza-García


This paper tests both the competition-fragility and competition-stability hypotheses in the Mexican banking sector for the period 2001-2008. In order to account for the degree of competition we use Lerner index, and the Z-index and the ratio of non-performing loans to total loans as proxies of financial stability and bank portfolio risks respectively. The main results indicate there is support for both hypotheses. However, the benefits of greater competition on the overall stability of the system outweigh the increases in bank portfolio risks. 


Financial Stability; Lerner Index; Bank Competition; Mexican Banking Sector; Generalised Method of Moments (GMM)

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    Ensayos Revista de Economía, Vol. 36, No. 1, Mayo 2017, es una publicación semestral editada por la Universidad Autónoma de Nuevo León, a través de la Facultad de Economía con la colaboración del Centro de Investigaciones Económicas, Av. Lázaro Cárdenas 4600 Ote., Fracc. Residencial Las Torres, Monterrey, N.L. C.P. 64930. Tel. +52 (81) 8329 4150 Ext. 2463 Fax. +52 (81) 8342 2897. Editor Responsable: Daniel Flores Curiel, Reserva de Derechos al Uso Exclusivo No. 04-2015-091013542400-203, ISSN 2448-8402, ambos otorgados por el Instituto Nacional del Derecho de Autor. Responsable de la última actualización de este Número, Facultad de Economía UANL, M.C. Hans Y. Martinez Torres, Av. Lázaro Cárdenas 4600 Ote., Fracc. Residencial Las Torres, Monterrey, N.L. C.P. 64930. Tel. +52 (81) 8329 4150. Fecha última de actualización 9 de Mayo de 2017.

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