Working Paper

When does financial liberalization make banks risky? : an empirical examination of Argentina, Canada and Mexico

Abstract: In the literature on systemic banking crises, two common themes are: (1) lack of market discipline encourages risky lending and (2) financial liberalization or privatization lead to risky lending. However, there is evidence to suggest that neither financial liberalization nor weak market discipline always precedes risky lending. We test for depositor discipline and, separately for post-liberalization or post-privatization risky lending in Argentina, Canada, and Mexico. In the countries without market discipline, lending risk increases significantly in the wake of liberalization. Where depositors discipline banks, banks neither behave riskily nor does their risk increase in the wake of privatization. ; Economic Research Working Paper 9905

Keywords: Banks and banking - Argentina; Banks and banking - Canada; Banks and banking - Mexico; Financial crises;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Center for Latin America Working Papers

Publication Date: 1999

Number: 0399