Private and state-owned banks in times of high instability: Mexico 1977-1990

GloCoBank Project Research Seminar

What are the effects of government expropriation of banks in an environment of high macroeconomic instability? In 1982, at the beginning of the Latin American debt crisis, the Mexican government expropriated the banking industry. This was an inflexion point in the development of the financial system of that country. At the time of the expropriation, global crisis, financial repression and macroeconomic instability created adverse conditions for the financial system. This scenario provides a context to analyze how coping with a crisis might change from a situation in which banks were privately-owned to one in which they were state-owned institutions. But in such context, strategies to cope with an environment of risk and instability differ among banks. Our goal is to explain those strategies and performance. We advance the preliminary hypotheses that (as should be expected) strategies of banks to cope with risk and instability changed from private to state-owned, since they respond to their shareholders’ interest. Moreover, as state-owned firms, the banking system enjoyed better coordination and joint capacity to solve problems emerging from the macro crisis. The expropriation, rather than affecting banks’ performance, which was positive, hindered financial development.

Co-author: Marisol López-Romero (Centro de Investigación en Economía Creativa, México)

Gustavo A Del Ángel is Professor in the Department of Economics at CIDE (México City) and researcher by courtesy at the Centro Espinosa Yglesias. Gustavo specializes in financial history and banking. He was visiting researcher at the Centro Espinosa Yglesias; National Fellow at the Hoover Institution in Stanford University; Professeur visitant at Université de Paris; and researcher at UC San Diego. He also served at the Banco de México, the Mexican central bank. He is member of the Mexican Academy of Sciences and was President of the Mexican Association of Economic History. He holds a PhD in History from Stanford University

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