Bank capital regulation and the effects on profitability in Mexico

Abstract

The purpose of this study is to find empirical evidence of the effects that capital regulation has on the profitability of banks in the Mexican financial system. The period of analysis runs from 2006 to 2019, where the Basel III Accord took effect. The methodology used was panel data with fixed effects and Hausman Taylor estimators. Results show a general positive inuence of capitalization over profit metrics, as in relevant literature. Nevertheless, this positive relationship reverses and becomes negative after the abrupt implementation of Basel III accords in Mexico in 2012. Other determinant, like a dummy variable representing the Great Financial Crisis and a ratio for liquidity, have the expected sings and coincide with previous literature results.