Banking Competition in Mexico

Abstract

One of the most widely debated sectors in terms of economic competition is the financial system – particularly banks. Although worldwide trends in this sector have been moving towards concentration, the available studies conclude that this is not impairing competition. Such trends can be seen in Mexico, where the banking sector has tended towards apparent concentration resulting from mergers between financial intermediaries, with emphasis on national institutions being absorbed by foreigners. The country, however, has failed to enjoy the normal benefits of efficient financial intermediation. On the one hand, although the interest rate spread (main price in the sector) has diminished in recent years, it remains high by international standards; on the other, overall sector penetration as a proportion of gross domestic product (GDP) – 30% in 2002 – is still the lowest among the Organisation for Economic Co-operation and Development (OECD) countries. This study is structured as follows: The second section presents a review of certain theoretical concepts on competition, the third section analyses the status of competition in the banking sector, bearing two approaches in mind: the traditional view of concentration and the alternative one of contestability. The fourth section shows some of our conclusions. (This abstract was borrowed from another version of this item.)