Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. We estimate the deposit supply function and show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction. These findings are consistent with depositors interpreting the deposit rate itself as a complementary proxy of otherwise unobserved bank-level risk.
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number
13/2006.
Length: 42 pages Date of creation: 26 Oct 2006 Date of revision: Handle: RePEc:hhs:bofitp:2006_013
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Find related papers by JEL classification: G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
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