The Hidden Costs of Mexican Banking Reform

Analyses of the Mexican financial system in the wake of the 1994- 95 peso crisis have generally focused on the fiscal costs of recapitalizing the nation’s banks and of satisfying bank claimants. Seemingly missing from these reports are the possible costs of the incentives provided by banking reform. Such costs might be reflected in the prices at which Mexican banks attract funding or the likelihood that taxpayers will have to provide additional assistance.