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THE POLITICAL ECONOMY OF BANKING REGULATION: THE CASE OF MEXICO, 1940-1978

Villalpando-Benitez, Mario
http://rave.ohiolink.edu/etdc/view?acc_num=osu973014578

Abstract Details

2000, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Development Economics.
This dissertation develops a model of banking regulation from a positive political economy perspective. The main characteristic of this model, based on the interrelation between regulators and incumbent banks, is that regulation is driven by public interest and political economy motives. The public interest of regulators includes the efficiency and soundness of the banking industry. The political economy motives consist of two elements. First, incumbent banks demand regulation to obtain higher than competitive proits (rent-seeking motive). Second, regulation by itself is rewarding for the regulator. In the model, the government finances the public-sector deficit with banking resources (fiscal motive). Regulators make use of two instruments. The first is to require banks to hold minimum capital adequacy levels. Theory predicts that increasing bank capital reduces the risk of bank failure. The second instrument is the control of entry, which makes bank charters valuable, so banks follow a conservative behavior to protect their charters. Entry restrictions, however, have a negative impact on efficiency in the industry. Regulatory policy is based on a trade-off: soundness versus efficiency. The model synthesizes the public interest and political economy motives of regulation. A main prediction is that regulation is dynamically time-inconsistent because the regulator uses its discretionary and coercive power to renege on the agreement with the incumbent banks to obtain windfall revenues. The model empirically fits the Mexican experience. Non-public interest factors weighted more in the making of regulatory policy in the 1940-1956 period. This was a period of easy bank entry and increasing public sector budget financing with bank resources. Public interest motives were more important for 1957-1978 and for the overall 1940-1978 period. These findings support the claim that long-run growth with financial stability of the Mexican economy was based on two elements. First, financing of the public sector deficit with bank resources avoided excessive use of the inflation tax. Second, while regulatory policy reflected political economy factors, the promotion of stability was a key factor in banking policy.
Claudio Gonzalez-Vega (Advisor)
118 p.
banking; banking regulation; political economy; Mexico; finance; economic history; entry restrictions; banking regulation in Mexico

Recommended Citations

Citations

  • Villalpando-Benitez, M. (2000). THE POLITICAL ECONOMY OF BANKING REGULATION: THE CASE OF MEXICO, 1940-1978 [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu973014578

    APA Style (7th edition)

  • Villalpando-Benitez, Mario. THE POLITICAL ECONOMY OF BANKING REGULATION: THE CASE OF MEXICO, 1940-1978. 2000. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu973014578.

    MLA Style (8th edition)

  • Villalpando-Benitez, Mario. "THE POLITICAL ECONOMY OF BANKING REGULATION: THE CASE OF MEXICO, 1940-1978." Doctoral dissertation, Ohio State University, 2000. http://rave.ohiolink.edu/etdc/view?acc_num=osu973014578

    Chicago Manual of Style (17th edition)

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