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

Author

Listed:
  • Raúl Osvaldo Fernández

    (Financial Researcher, Directorate of Financial Stability, Banco de México. México, D.F.)

  • Jesús G. Garza-García

    (Chief Mexico Economist, Itaú BBA. México, D.F.)

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 over 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.

Suggested Citation

  • Raúl Osvaldo Fernández & Jesús G. Garza-García, 2015. "The relationship between bank competition and financial stability: a case study of the Mexican banking industry," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 103-120, May.
    • Handle: RePEc:ere:journl:v:xxxiv:y:2015:i:1:p:103-120
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    References listed on IDEAS

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    Cited by:

    1. Dao, Kieu Oanh & Kieu, Le & Tu, Pham Thuy & Nguyen, V.C., 2020. "Factors Affecting the Competitive Capacity of Commercial Banks: A Critical Analysis in an Emerging Economy," OSF Preprints 8mz2y, Center for Open Science.
    2. Le Kieu Oanh Dao & Thuy Tu Pham & Van Chien Nguyen, 2020. "Factors Affecting the Competitive Capacity of Commercial Banks: A Critical Analysis in an Emerging Economy," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 241-254, July.
    3. Biswa Swarup Misra & Paolo Coccorese, 2022. "Market power, efficiency and stability of Indian banks," Economic Change and Restructuring, Springer, vol. 55(4), pages 2263-2292, November.
    4. Abayomi Oredegbe, 2022. "Competition and Banking Industry Stability: How Do BRICS and G7 Compare?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(1), pages 7-31, March.
    5. Huayta, Katia & Garcia, Antonella & Sotomayor, Narda, 2018. "Competitive Environment and Financial Stability in the Peruvian Microfinance System," Working Papers 2018-005, Banco Central de Reserva del Perú.
    6. Maria Karadima & Helen Louri, 2019. "Non-performing loans in the euro area: does market power matter?," Working Papers 271, Bank of Greece.
    7. Maria Karadima & Helen Louri, 2020. "Reply to “Remarks on Bank Competition and Convergence Dynamics”," JRFM, MDPI, vol. 13(6), pages 1-6, June.

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    More about this item

    Keywords

    Financial Stability; Lerner index; Bank Competition; Mexican Banking Sector; Generalised Method of Moments (GMM);
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • N2 - Economic History - - Financial Markets and Institutions

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