Corporate strategy for Mexican banks and market contestability

Abstract

Bank corporate strategy can be considered as managers recognising available types of growth opportunities and then pursuing them. This approach considers that growth opportunities are external to banks and is the one adopted by most economic analysis. Based on this view the article reviews the most significant theoretical and empirical contributions in economic analysis to asses how changes in regulation-policy causes changes in the strategies of commercial banks. Policy-makers change banks' legal framework based on macroeconomic variables, trying to increase banks' technical efficiency. Successful regulation policy will create positive excess demand for the services of financial intermediaries. However, these decisions do not necesarily imply a unique stimulus for banks and, hence, the development of diverse strategic responses. The discussion claims those differences in technical efficiency result in unequal market shares. The analysis of Mexican banking in the early 1990s explains how the Theory of Contestable Markets is adequate to devise banks' corporate strategy.