Mexican Banking Regulation: Evidence of the Appropriateness of Government Intervention

In this paper we investigate the validity of two assumptions frequently used to justify the transformation of the Mexican banking system through federal regulation. These assumptions are: (i) the alleged existence of economies of scale, and (ii) a homogeneous structure of the Mexican banking system. Econometric evidence from banking data over the period 1980 - 1982 suggests that neither of these assumptions are likely valid. The Mexican banking system is subject to constant rather than increasing returns to scale