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Do Depositors Respond Rationally To Bank Risks? Evidence From Japanese Banks During Crises

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  • Masahiro Hori
  • Yasuaki Ito
  • Keiko Murata

Abstract

This paper empirically examines depositors' ability to distinguish healthy banks from problematic banks, a necessary condition for depositors to impose discipline on banking institutions. We analyzed a large panel of 784 deposit-taking institutions in Japan during the period from the 1992 financial year to the 2002 financial year. Our estimates indicate that depositors rightly appreciated the difference between healthy banks and risky banks, and that depositors of larger institutions are more sensitive to the bank risks than those of smaller institutions. We further argue that the estimated risk sensitivities of depositors are large enough to discipline the deposit-taking institutions. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 14 (2009)
Issue (Month): 5 (December)
Pages: 581-592

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Handle: RePEc:bla:pacecr:v:14:y:2009:i:5:p:581-592

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1361-374X

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Cited by:
  1. Emmanuelle Nys & Amine Tarazi & Irwan Trinugroho, 2013. "Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy," Working Papers hal-00916513, HAL.
  2. McQuinn, Kieran & Woods, Maria, 2012. "Modelling the corporate deposits of Irish financial institutions: 2009 - 2010," Research Technical Papers 02/RT/12, Central Bank of Ireland.

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