Private and state-owned banks in times of high instability. Mexico 1970-1988
What are the effects of banks’ expropriationby the government in an environment of high macroeconomic instability? In 1982, in the beginning of the Latin American debt crisis, the Mexican government expropriated the banking industry. This was an inflexion point in the financial system of that country. At the time of the expropriation, global crisis, financial repression and macroeconomic instability created adverse conditionsfor the financial system. This scenario provides a natural experiment to analyze how coping with a crisis might change from a situation in whichbanks were privately-owned to one in which they were State-owned institutions. But in such context, strategies to cope with an environment of risk and instability differ among banks and they -individually-exhibitdifferent performance. Our goal is to explain how those strategies changed after banks became state-owned organizations and explain whether legacies in individual banks influenced their strategies and performance after they were expropriated, or not.We advance two preliminary hypotheses. First, as it should be expected, strategies of banks to cope with risk and instability change from private to state-owned,since they respond to their shareholders’interest. Moreover, asstate-owned firms, the banking systemenjoyed better coordination and joint capacity to solve problems emerging from the macro crisis. Second, legacies in the internal organization of banks made a difference in their performance after the expropriation and its aftermath.
