Watch the Dean's Vibrato online guitar lesson by Larry Carlton from 335 Blues
Now let's sustain a bended note and add some vibrato to it. As you'll see, the wrist is still doing all the vibrato work. I just have to control how much I push and/or release based on how far off the pitch I want to come. I can simply add a little vibrato to the note I've bended to, or do a wide vibrato between the note I'm fretting and the one I'm bending to.
The practice method Dean showed me is basically about turning a succession of bends into vibrato. Start with a half-step bend, and make sure you're playing it in tune. That's right - bend all the way up a half step, like I do here from G# to A. Now repeat that many times in a row, playing the bends one right after another. Pretty soon it starts to sound like vibrato. But you have to keep hitting that half-step pitch!
You also want to keep tempo in mind, so that the ups and downs of your vibrato fall on 8th notes or 16ths, or whatever makes sense in the context of the song. Start slowly and soon you'll be able to play vibrato in good time and on pitch.