17

**Table 6.**

**Assets of the Financial System by Type of Institution (in billion Pesos)**

||1986|(%)|1987|**(%)**|<br>1988|(°')|1989|**(%)**|<br>1990|**(%)**|<br>1991|**(%**|**)**<br>1992 (%)|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Commercial Banks|33,636|46|78,566|_45_|105,460|42|155,854|47|238,251|53|367.653|58|398,079 59|
|Development Banks|33.833|47|85.259|48|99,069|39|109,305|33|103,773|_23_|116,282|19|136,258 20|
|Trust Funds|3.347|4.6|7,870|4.5|10,587|4.2|13,445|<br>4|14,408|3.2|18,789|<br>_3_|<br>21.444 3.2|
|Brokerage Firms|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|<br>n.a n.a|
|Insurance Companies|1,938|2.7|4.781|2.7|7.949|_3.2_|11,107|3.3|14,752|_3.3_|19,567|3.1|<br>22,993 3.4|
|Mutual Funds|n.a|n.a|n.a|n.a|26,273|10|40,222|12|59,744|13|82,079|13|59,836 8.9|
|FactoringCompanies|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|7,129|1.6|<br>7,009|1.1|<br>11,774 1.7|
|Leasing Companies|n.a|n.a|n.a|n.a|2,438|1|<br>3,680|1.1|9,245|2.1|17,224|2.7|23,223 3.4|
|Warehousing Companies|n.a|n.a|n.a|n.a|n.a|n.a|<br>705|0.2|1,077|0.2|<br>1,531|0.2|<br>1,812_0.3_|
|Foreign Exchange Houses|<br>n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|n.a|<br>n.a n.a|

Total 72,754 100 176,476 100 251,776 100 334,318 100 448.379 100 630,134 100 675,419 100o Sources: Banco de Mexico, CNB. CNSF, CNV Notes: These are gross assets and do not net out positions among these entitle 40. The actual services which can be provided by each entity within the group, as well as by the commercial bank and holding are summarized in Table 7."5 Note, that while commercial banks may take equity positions in firms or hold debt of such entities, they do not generally retain control of non-financial-corporations and they cannot legally underwrite securities offerings. Thus, such institutions cannot be thought of as "Universal Banks" despite the fact that many securities market transactions and investment banking functions can be carried out in the commercial bank within the financial conglomerate. Table 7 below indicates that many entities within the financial group can issue subordinated debt and can provide services that are close substitutes to those provided by the commercial bank.

41. Although this type of financial structure may allow for taking advantage of some economies of scope (see Ortiz ( )) it also has its disadvantages. First, this structure may cause incentive problems if the "true" controlling industrial group experiences financial distress. In this case, the "controlling shareholder group" of the industrial enterprise often finds a means of decapitalizing the financial group as has occurred in other Latin American countries such as Chile and Colombia in the past. Second, this type of structure may hinder transparency, not only to consumers that must purchase a bundle of financial products, but also to the managers of the financial group. In this latter case, this structure can make measurement of risk exposures on a net basis more complex and lead to a greater possibility of management mistakes.

42. The profitability of banking and, more broadly, financial services (see Annex I for detail) has elicited interest in entry by domestic financial institutions; this year alone there have been 1 1 rs For a more detailed discussion of the set of services, see Glaessner "Private sector Development and the Development of the Mexican Financial System" (1992).