IMF Working Papers

Financial Deepening in Mexico

By Alexander Herman, Alexander D Klemm

January 30, 2017

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Alexander Herman, and Alexander D Klemm. Financial Deepening in Mexico, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

International comparisons reveal that—even controlling for a host of explanatory factors—credit depth is exceptionally low in Mexico. Using panel data methods linking credit growth and fundamentals, this paper estimates a long-term gap between actual and expected credit of about 40 percent of GDP. Possible explanations include the history of banking crises, the large informal sector and an inefficient legal system. Using a disequilibrium regression approach, this paper also finds that supply factors are particularly important as determinants of credit in Mexico. Recent financial reforms address many of the supply constraints, but their success will depend on implementation. The main challenge going forward will be to support financial deepening, while limiting risks to financial stability.

Subject: Bank credit, Banking, Commercial banks, Credit, Credit cycles, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial sector policy and analysis, Money

Keywords: Bank credit, Banking sector, Caribbean, Commercial banks, Credit, Credit cycle, Credit cycles, Credit demand and supply, Credit depth, Credit gap, Credit growth, Credit quality, Demand and supply, Emerging and frontier financial markets, Financial development, GDP, Global, Mexico, Supply and demand, WP

Publication Details

  • Pages:

    20

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/019

  • Stock No:

    WPIEA2017019

  • ISBN:

    9781475572926

  • ISSN:

    1018-5941

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