ABSTRACT
This chapter reviews the origin of the 1995 Mexican banking crisis, and argues that this was not a sudden event but the product of a combination of microeconomic and macroeconomic factors similar to those that have been present in other banking crises around the world. In particular, what we find in the Mexican experience is a gradual deterioration of banks’ solvency that results from a fast credit expansion within an inadequate legal and regulatory framework. In this credit expansion, a key role is played by the processes of deregulation and privatization of the banking system, the fiscal adjustment program implemented by the government, huge capital inflows, and the emergence of optimistic expectations about the Mexican economy, among others.
