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Mexico's Banking Crisis: Devaluation and Asset Concentration Effects

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Listed:
  • Berry Wilson
  • Anthony Saunders
  • Gerard Caprio Jr.

Abstract

The sharp 1994-1995 Mexican peso devaluation was followed by a financial-sector crisis, forcing the Mexican government to retake control of several banks and to grant substantial assistance to many other banks. This paper uses daily stock price data to test several hypotheses concerning the impact of devaluation. First, we use event-study methodology to test whether some sectors of Mexican economy were 'devaluation-gaining' while other sectors were 'devaluation-losing.' Second, we test the linkage between the devaluation and the financial-sector crisis that ensued. Specifically, we test whether devaluation shocks were transmitted through the liability side versus the asset side of bank balance sheets. Our results suggest that governments should consider putting minimum guidelines on bank portfolios.

Suggested Citation

  • Berry Wilson & Anthony Saunders & Gerard Caprio Jr., 1997. "Mexico's Banking Crisis: Devaluation and Asset Concentration Effects," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-075, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:98-075
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    Cited by:

    1. Philip Keefer, 2002. "Politics and the Determinants of Banking Crises: The Effects of Political Checks and Balances," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 3, pages 085-112, Central Bank of Chile.

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