Banking Crises, Deposit Insurance, and Market Discipline: Lessons from the Asian Crises
AbstractWe investigate the effectiveness of market discipline by depositors during the period of 1992-2002 in the four crisis-hit Asian countries: Indonesia, Korea, Malaysia and Thailand. In Indonesia, the crises first weakened and then strengthened market, which is consistent with the wake-up-call effect found for the Latin American crisis-hit countries (Martinez Peria and Schmukler, 2001). Unlike Indonesia, we could not find an increase in depositors' responsiveness to bank risk after the crisis in the other three countries. In Korea and Thailand, depositors' risk sensitivity rather decreased after the crisis. In these countries, market discipline was at play before the crisis and the deposit protection schemes were constructed to ensure its credibility under stable political conditions.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 05029.
Length: 27 pages
Date of creation: Dec 2005
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-09 (All new papers)
- NEP-FMK-2005-12-09 (Financial Markets)
- NEP-IAS-2005-12-09 (Insurance Economics)
- NEP-SEA-2005-12-09 (South East Asia)
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