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Finance companies in Mexico: Unexpected victims of the global liquidity crunch

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  • Berrospide, Jose M.
  • Herrerias, Renata

Abstract

We study the connection between the global liquidity crisis and the severe credit crunch experienced by finance companies (SOFOLES) in Mexico using firm-level data between 2001 and 2011. Our results provide supporting evidence that, as a result of the liquidity shock, SOFOLES faced severely restricted access to their main funding sources (commercial bank loans, loans from other organizations, and public debt markets). After controlling for the potential endogeneity of their funding, we find that the liquidity shock explains 64 percent of SOFOLES’ credit contraction during the recent financial crisis (2008–2009). We use our estimates to disentangle supply from demand factors as determinants of the credit contraction. After controlling for the large decline in loan demand during the financial crisis, our findings suggest that supply factors (such as nonperforming loans and lower liquidity buffers) also played a significant role. Finally, we find that financial deregulation implemented in 2006 may have amplified the effects of the global liquidity shock.

Suggested Citation

  • Berrospide, Jose M. & Herrerias, Renata, 2015. "Finance companies in Mexico: Unexpected victims of the global liquidity crunch," Journal of Financial Stability, Elsevier, vol. 18(C), pages 33-54.
    • Handle: RePEc:eee:finsta:v:18:y:2015:i:c:p:33-54
    DOI: 10.1016/j.jfs.2015.02.004
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    Cited by:

    1. Bátiz-Zuk Enrique & Mohamed Abdulkadir & Sánchez-Cajal Fátima, 2021. "Exploring the sources of loan default clustering using survival analysis with frailty," Working Papers 2021-14, Banco de México.
    2. Bátiz-Zuk, Enrique & Lara-Sánchez, José Luis, 2022. "Measuring the evolution of competition and the impact of the financial reform in the Mexican banking sector, 2008–2019," Research in International Business and Finance, Elsevier, vol. 59(C).
    3. Ben Naceur, S. & Marton, Katherin & Roulet, Caroline, 2018. "Basel III and bank-lending: Evidence from the United States and Europe," Journal of Financial Stability, Elsevier, vol. 39(C), pages 1-27.
    4. Arora, Dhulika & Kashiramka, Smita, 2023. "What drives the growth of shadow banks? Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 54(C).
    5. Roulet, Caroline, 2018. "Basel III: Effects of capital and liquidity regulations on European bank lending," Journal of Economics and Business, Elsevier, vol. 95(C), pages 26-46.
    6. Cañón, Carlos & Cortés, Edgar & Guerrero, Rodolfo, 2022. "Bank competition and the price of credit: Evidence using Mexican loan-level data," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 56-74.

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    More about this item

    Keywords

    Financial crisis; Liquidity shock; Funding shock; Contagion; Non-bank finance companies;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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