The privatization of the Mexican banking sector in the 1990s: from debacle to disappointment

Purpose – The purpose of this paper is to examine the two‐step process of bank privatization in Mexico in the 1990s that necessitated a government bailout quite costly to Mexican taxpayers, and which has become emblematic as a cause of resentment against market liberalization among the Mexican public in recent years. This paper seeks to identify lessons to be learned from bank privatization in an important emerging market. Design/methodology/approach – Information was collected through secondary sources and field research in Mexico and abroad. Findings – The findings in this paper indicate that the bank privatization process was characterized by inadequate regulatory and financial controls which permitted large‐scale corruption and fraud resulting in a subsequent bank bailout by the Mexican Government. This created a major transfer of wealth from Mexican taxpayers to some of Mexico's wealthiest citizens, who owned or operated banks after the first wave of privatization. The subsequent sale of Mexican banks to foreign investors has also resulted in disappointment, as the quality of service remains poor and banks are inadequate in serving the financial needs of the private sector, necessary for the country's development. Practical implications – This study identifies the flaws in the bank privatization process in an emerging market, as well as the problems presented by an inadequate legal and regulatory framework. Originality/value – This is a case study of the background and current situation confronting the financial sector in a significant emerging market.