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Dynamic Depositor Discipline: Evidence Based on East Asian Banks

Author

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  • Fazelina Sahul Hamid

    (The author is Faculty Member at the School of Distance Education, Universiti Sains Malaysia, Malaysia, email: fazelina@usm.my)

Abstract

This study confirms the endogenous relationship between the price and quantity of deposits in the depositor discipline model. Dynamic panel data analysis is carried out to account for the lagged dependency of the deposits growth variable and endogeneity of the price mechanism in the depositor discipline model. The results show that depositors in East Asia do not demand a higher price for deposits. Analysis by subdividing the sample of banks into healthy and weak banks shows that the relationship between price and quantity is not non-linear. Healthy banks are not able to attract more deposits by raising price. Depositors do not discipline weak banks by demanding a higher return. Lack of responsiveness by depositors to price signals may be attributable largely to the outflow of deposits that happened during the crisis period and regulations on interest rates. JEL Classification: G21, G28, N25

Suggested Citation

  • Fazelina Sahul Hamid, 2015. "Dynamic Depositor Discipline: Evidence Based on East Asian Banks," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(3), pages 218-253, August.
    • Handle: RePEc:sae:mareco:v:9:y:2015:i:3:p:218-253
    DOI: 10.1177/0973801015579715
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    More about this item

    Keywords

    Depositor Discipline; East Asia; Banks; Dynamic Panel Data Analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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