International banking and financial fragility: the role of regulation in Brazil and Mexico, 1967–1982

Abstract

The shortcomings and potential dangers of international financial flows for the health and stability of domestic banking systems in developing countries have been copiously discussed over the last decades. While the importance of capital controls and regulation as determining factors has been widely emphasised, the extent to which these policies work in episodes of financial crisis is still a matter of debate. This article examines the relationship between supervisory frameworks and banking fragility in Mexico and Brazil in the wake of the international debt crisis of 1982. It shows that the model of international banking intermediation that evolved out of the stringent capital mobility system in Brazil was considerably less vulnerable to crisis than in Mexico, which had a more lightly regulated regime. These findings provide insights into historical debates about the implications of prudential regulation and capital controls for the development and expansion of foreign finance, and whether the risks underlying international banking are necessarily inherent in the process of financial globalisation.

Tunneling when Regulation is Lax: The Colombian Banking Crisis of the 1980s

“…The literature on banking during the Latin American crisis of the 1980s has emphasized capital flows, export prices, mismatches in maturity, mismatches in currency, exposure to government debt, dependency on foreign funding, financial liberalization, international political support, and reputation as explanations for the crisis (Diaz-Alejandro, 1985;Frieden, 1987;Devlin, 1989;Bértola & Ocampo, 2012;Marichal, 2013;Ocampo J. A., 2014;Álvarez, 2015;Álvarez, 2017) (Álvarez, 2018;García Heras, 2018;Caselli, Faralli, Manasse, & Panizza, 2021;Álvarez, 2021). However, less attention has been paid to the role of tunneling in worsening the crisis.…”