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

Raúl Osvaldo Fernández () and Jesus Garza-Garcia
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Raúl Osvaldo Fernández: Financial Researcher, Directorate of Financial Stability, Banco de México. México, D.F.

Ensayos Revista de Economia, 2015, vol. XXXIV, issue 1, 103-120

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.

Keywords: Financial Stability; Lerner index; Bank Competition; Mexican Banking Sector; Generalised Method of Moments (GMM) (search for similar items in EconPapers)
JEL-codes: D4 G15 G21 L11 N2 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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