This file is part of IDEAS , which uses RePEc data
[ Papers |
Articles |
Software |
Books |
Chapters |
Authors |
Institutions |
JEL Classification |
NEP reports |
Search |
New papers by email |
Author registration |
Rankings |
Volunteers |
FAQ |
Blog |
Help! ]
The impact of explicit deposit insurance on market discipline Author info | Abstract | Publisher info | Download info | Related research | Statistics Ioannidou, Vasso P.
Dreu, Jan de (Tilburg University, Center for Economic Research)
Additional information is available for the following
registered author(s):
This paper studies the impact of explicit deposit insurance on market discipline in a framework that resembles a natural experiment. We improve upon previous studies by exploiting a unique combination of country-specific circumstances, design features, and data availability that allows us to distinguish between demand and supply effects. We show that deposit insurance causes a significant reduction in market discipline. We also show that the effect of deposit insurance depends on the coverage rate. When the coverage rate is more than 60 percent, market discipline is significantly reduced and it is completely eliminated when the coverage rate reaches 100 percent. Our results also suggest that most market discipline comes from large depositors and that the introduction of deposit insurance affected mainly those who were already active in imposing discipline. Our findings emphasize the need for binding coverage limits per depositor, high degrees of co-insurance, and "tailor made" deposit insurance systems that preserve the incentives of a critical mass of depositors that are willing and able to perform this function.
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
5.
Download reference. The following formats are available: HTML
(with abstract ),
plain text
(with abstract ),
BibTeX ,
RIS (EndNote, RefMan, ProCite),
ReDIF
Length:
Date of creation: 2006Date of revision:
Handle: RePEc:dgr:kubcen:20065Contact details of provider: Web page: http://center.uvt.nl
For technical questions regarding this item, or to correct its listing, contact: (Corry Stuyts).
Keywords: market discipline ; deposit insurance ; deposit insurance coverage ; Other versions of this item:
Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Edward J. Kane, 1987.
"Who Should Learn What From the Failure and Delayed Bailout of the ODGF? ,"
NBER Working Papers
2260, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Peek, Joe & Rosengren, Eric, 1995.
"Bank regulation and the credit crunch ,"
Journal of Banking & Finance ,
Elsevier, vol. 19(3-4), pages 679-692, June.
[Downloadable!] (restricted)
Other versions: Furfine, Craig H, 2001.
"Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market ,"
Journal of Business ,
University of Chicago Press, vol. 74(1), pages 33-57, January.
[Downloadable!] (restricted)
Reint Gropp & Jukka Vesala, 2002.
"Deposit insurance, moral hazard, and market monitoring ,"
Proceedings ,
Federal Reserve Bank of Chicago, issue May, pages 75-107.
Other versions: Laeven, Luc, 2004.
"The political economy of deposit insurance ,"
Policy Research Working Paper Series
3247, The World Bank.
[Downloadable!]
Other versions: Gorton, Gary & Santomero, Anthony M, 1990.
"Market Discipline and Bank Subordinated Debt ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 22(1), pages 119-28, February.
[Downloadable!] (restricted)
James, Christopher, 1990.
"Heterogeneous creditors and the market value of bank LDC loan portfolios ,"
Journal of Monetary Economics ,
Elsevier, vol. 25(3), pages 325-346, June.
[Downloadable!] (restricted)
Enrica Detragiache & Asli Demirgüç-Kunt, 2000.
"Does Deposit Insurance Increase Banking System Stability? ,"
IMF Working Papers
00/3, International Monetary Fund.
Edward J. Kane, 1987.
"Who should learn what from the failure and delayed bailout of the ODGF? ,"
Proceedings ,
Federal Reserve Bank of Chicago, pages 306-326.
Park, Sangkyun, 1995.
"Market discipline by depositors: Evidence from reduced-form equations ,"
The Quarterly Review of Economics and Finance ,
Elsevier, vol. 35(35), pages 497-514.
[Downloadable!] (restricted)
Flannery, Mark J, 1982.
"Retail Bank Deposits as Quasi-Fixed Factors of Production ,"
American Economic Review ,
American Economic Association, vol. 72(3), pages 527-36, June.
[Downloadable!] (restricted)
Ellis, David M. & Flannery, Mark J., 1992.
"Does the debt market assess large banks, risk? : Time series evidence from money center CDs ,"
Journal of Monetary Economics ,
Elsevier, vol. 30(3), pages 481-502, December.
[Downloadable!] (restricted)
Demirguc-Kunt, Asli & Detragiache, Enrica, 1999.
"Does deposit insurance increase banking system stability ? An empirical investigation ,"
Policy Research Working Paper Series
2247, The World Bank.
[Downloadable!]
Other versions:
Asli Demirguc-Kunt & Enrica Detragiache, 2000.
"Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation ,"
Econometric Society World Congress 2000 Contributed Papers
1751, Econometric Society.
[Downloadable!] Demirguc-Kunt, Asli & Detragiache, Enrica, 2002.
"Does deposit insurance increase banking system stability? An empirical investigation ,"
Journal of Monetary Economics ,
Elsevier, vol. 49(7), pages 1373-1406, October.
[Downloadable!] (restricted) Cook, Douglas O & Spellman, Lewis J, 1994.
"Repudiation Risk and Restitution Costs: Toward Understanding Premiums on Insured Deposits ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 26(3), pages 439-59, August.
[Downloadable!] (restricted)
Flannery, Mark J, 1998.
"Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 30(3), pages 273-305, August.
Goldberg, Lawrence G. & Hudgins, Sylvia C., 1996.
"Response of uninsured depositors to impending S&L failures: Evidence of depositor discipline ,"
The Quarterly Review of Economics and Finance ,
Elsevier, vol. 36(3), pages 311-325.
[Downloadable!] (restricted)
Herbert Baer & Elijah Brewer, 1986.
"Uninsured deposits as a source of market discipline: some new evidence ,"
Economic Perspectives ,
Federal Reserve Bank of Chicago, issue Sep, pages 23-31.
[Downloadable!]
Asli Demirguc-Kunt & Edward J. Kane, 2002.
"Deposit Insurance around the Globe: Where Does It Work? ,"
Journal of Economic Perspectives ,
American Economic Association, vol. 16(2), pages 175-195, Spring.
[Downloadable!] (restricted)
Other versions: Demirguc-Kunt, Asli & Huizinga, Harry, 2004.
"Market discipline and deposit insurance ,"
Journal of Monetary Economics ,
Elsevier, vol. 51(2), pages 375-399, March.
[Downloadable!] (restricted)
Schumacher, Liliana, 2000.
"Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock ,"
Journal of Monetary Economics ,
Elsevier, vol. 46(1), pages 257-277, August.
[Downloadable!] (restricted)
Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005.
"Deposit insurance around the world : a comprehensive database ,"
Policy Research Working Paper Series
3628, The World Bank.
[Downloadable!]
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.
Calomiris, Charles W., 1999.
"Building an incentive-compatible safety net ,"
Journal of Banking & Finance ,
Elsevier, vol. 23(10), pages 1499-1519, October.
[Downloadable!] (restricted)
Billett, Matthew T. & Garfinkel, Jon A. & O'Neal, Edward S., 1998.
"The cost of market versus regulatory discipline in banking1 ,"
Journal of Financial Economics ,
Elsevier, vol. 48(3), pages 333-358, June.
[Downloadable!] (restricted)
James, Christopher, 1988.
"The use of loan sales and standby letters of credit by commercial banks ,"
Journal of Monetary Economics ,
Elsevier, vol. 22(3), pages 395-422.
[Downloadable!] (restricted)
Randall S. Kroszner & Philip E. Strahan, 2001.
"Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms ,"
NBER Chapters ,
in: Prudential Supervision: What Works and What Doesn't, pages 233-272
National Bureau of Economic Research, Inc.
[Downloadable!]
Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999.
"Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico ,"
Policy Research Working Paper Series
2058, The World Bank.
[Downloadable!]
Joe Peek & Eric S. Rosengren, 2000.
"Implications of the globalization of the banking sector: the Latin American experience ,"
New England Economic Review ,
Federal Reserve Bank of Boston, issue Sep, pages 45-62.
[Downloadable!]
Other versions: Charles W. Calomiris & Andrew Powell, 2000.
"Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999 ,"
NBER Working Papers
7715, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Cook, Douglas O. & Spellman, Lewis J., 1991.
"Federal financial guarantees and the occasional market pricing of default risk: Evidence from insured deposits ,"
Journal of Banking & Finance ,
Elsevier, vol. 15(6), pages 1113-1130, December.
[Downloadable!] (restricted)
Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity ,"
Quarterly Review ,
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
[Downloadable!]
Other versions:
Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity ,"
Journal of Political Economy ,
University of Chicago Press, vol. 91(3), pages 401-19, June.
[Downloadable!] (restricted) Avery, Robert B & Belton, Terrence M & Goldberg, Michael A, 1988.
"Market Discipline in Regulating Bank Risk: New Evidence from the Capital Markets ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 20(4), pages 597-610, November.
[Downloadable!] (restricted)
Adolfo Barajas & Roberto Steiner, .
"Depositor Behavior and Market Discipline in Colombia ,"
IMF Working Papers
00/214, International Monetary Fund.
Hannan, Timothy H & Hanweck, Gerald A, 1988.
"Bank Insolvency Risk and the Market for Large Certificates of Deposit ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 20(2), pages 203-11, May.
[Downloadable!] (restricted)
Other versions: Maria Soledad Martinez Peria, 2001.
"Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises ,"
Journal of Finance ,
American Finance Association, vol. 56(3), pages 1029-1051, 06.
[Downloadable!] (restricted)
Eduardo Levy Yeyati & Maria Soledad Martinez Peria & Sergio Schmukler, 2004.
"Market Discipline in Emerging Economies: Beyond Bank Fundamentals ,"
Business School Working Papers
marketdiscipline, Universidad Torcuato Di Tella.
[Downloadable!]
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Peresetsky, A.A. & Karminsky, A.M. & Golovan, S.V., 2007.
"Russian banks´ private deposit interest rates and market discipline ,"
BOFIT Discussion Papers
2/2007, Bank of Finland, Institute for Economies in Transition.
[Downloadable!]
Semenova Maria, 2007.
"How depositors discipline banks: the case of Russia ,"
EERC Working Paper Series
07-02e, EERC Research Network, Russia and CIS.
[Downloadable!]
Access and
download statistics Did you know? You may want to explore EconPapers , which displays the same data as IDEAS in a different way.
This page was last updated on 2009-11-25.
This information is provided to you by IDEAS at the Department of Economics , College of Liberal Arts and Sciences , University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics .