The relationship between bank competition and financial stability: a case study of the Mexican banking industry: La relación entre competencia bancaria y estabilidad financiera: un estudio de caso de la industria bancaria mexicana

Raúl Osvaldo Fernández; Jesús G. Garza-García

doi:10.29105/ensayos34.1-4

Authors

Raúl Osvaldo Fernández Banco de México
Jesús G. Garza-García Itaú BBA

DOI:

https://doi.org/10.29105/ensayos34.1-4

Keywords:

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

Abstract

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.

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Author Biographies

Raúl Osvaldo Fernández, Banco de México

Financial Researcher, Directorate of Financial Stability, Banco de México. Address: Ave. 5 de mayo # 1 piso 1, Del. Cuauhtémoc, México, D.F. Phone: + 52 (55)52372000, ext. 3252

Jesús G. Garza-García, Itaú BBA

Chief Mexico Economist, Itaú BBA. Address: Avenida Santa Fé 462, Piso 14, Col. Santa Fé, Del. Cuajimalpa, CP. 05438, Mexico City. Phone: +52 (55)41618908.

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