Advanced Search
MyIDEAS: Login to save this article or follow this journal

Do markets “discipline” all banks equally?

Contents:

Author Info

  • Joa˜o A.C. Santos

Abstract

Purpose – The purpose of this paper is to investigate whether the bond market disciplines all banks equally, in the sense of demanding the same relative risk premium across banks of different risk over the business cycle. Design/methodology/approach – To test this hypothesis, the paper compares the difference between the credit spreads in the primary market of bank and firm bonds with the same credit rating issued during expansions with that same difference of spreads for bonds issued during recessions. Findings – The paper finds that during recessions investors demand higher risk premiums. Importantly, the paper finds that the impact of recessions is not uniform across banks – it affects riskier banks more than safer ones. In other words, in recessions investors are relatively more demanding on riskier banks than on safer ones. Originality/value – These findings are novel. They also have important policy implications because they show that a bond-issuance policy aimed at promoting market discipline could affect the relative funding costs of banks over the business cycle. They also indicate that the information which can be extracted from the credit spreads on bank bonds varies across banks for reasons unrelated to their risk.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=4752240C3B762E2844AD6AAC5A789842?contentType=Article&contentId=1790059
Download Restriction: Cannot be freely downloaded

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 1 (2009)
Issue (Month): 1 (April)
Pages: 107-123

as in new window
Handle: RePEc:eme:jfeppp:v:1:y:2009:i:1:p:107-123

Contact details of provider:
Web page: http://www.emeraldinsight.com

Order Information:
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Email:
Web: http://www.emeraldinsight.com/jfep.htm

Related research

Keywords: Banks; Risk analysis; Financial markets;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Adrian Pop, 2009. "Beyond the Third Pillar of Basel Two: Taking Bond Market Signals Seriously," Working Papers hal-00419241, HAL.
  2. Luc Laeven, 2011. "Banking Crises: A Review," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 17-40, December.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:1:y:2009:i:1:p:107-123. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.