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Testing for effective market supervision of New Zealand banks

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  • McIntyre, M.L.
  • Tripe, David
  • Zhuang, Xiaojie (Jeff)
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    Abstract

    There is a considerable amount of research that seeks to determine the extent to which retail market participants exert market discipline on banks either through the price approach (the correlation of price to risk), or the quantity approach (the movement of funds in response to changes in risk). In this paper we propose and implement a third approach: the retail market conditions approach. We seek to determine if the prerequisites for the exertion of effective market discipline by stakeholder monitors, as set out in Llewellyn and Mayes (2003. The role of market discipline in handling problem banks. Bank of Finland Discussion Papers. (retrieved 13.04.04)), prevail by directly examining conditions that prevail among retail market participants. We find little evidence to support the proposition that they are being met among New Zealand retail depositors.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 5 (2009)
    Issue (Month): 1 (January)
    Pages: 25-34

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    Handle: RePEc:eee:finsta:v:5:y:2009:i:1:p:25-34

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    Web page: http://www.elsevier.com/locate/jfstabil

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    Keywords: Banking Market discipline;

    References

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    1. Cook, Douglas O. & Spellman, Lewis J., 1996. "Firm and Guarantor Risk, Risk Contagion, and the Interfirm Spread among Insured Deposits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(02), pages 265-281, June.
    2. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-64, August.
    3. David T. Llewellyn & David G. Mayes, 2004. "The role of market discipline in handling problem banks," Finance 0404020, EconWPA.
    4. John S. Jordan, 2000. "Depositor discipline at failing banks," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 15-28.
    5. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    6. Dr Donald Brash, 1997. "Banking soundness and the role of the market," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 60, March.
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