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Are banks peer disciplined? Evidence from post-crisis Russia

Author

Listed:
  • Maria Semenova

    (Center for Institutional Studies, National Research University Higher School of Economics, Moscow)

  • Irina Andrievskaya

    (PhD student at University degli Studi di Verona)

Abstract

Market discipline is usually studied in the retail or the corporate deposit markets, while the interbank loan market is disregarded. Banks' abilities to exert market discipline are taken for granted, as they are expected to have the expertise to assess correctly the riskiness of other banks. However, the “crises of trust” (as one in 2004 in Russia) create some doubts as to whether efficient peer monitoring and peer discipline exist: the interbank loan market may be frozen in response to external information which is unrelated to the banks’ current reliability. This seems to be one of the reasons for the interbank loan markets being extremely fragile during periods of financial instability, undermining the smooth functioning of the whole banking system, as banks are tightly interconnected. We provide some evidence for market discipline in the Russian interbank market. We show that the only disciplinary mechanism that functions is a price-based one: more reliable banks enjoy lower interest rates. The quantitative discipline functions only for the largest borrowers. In general, decisions on credit limits are based not on changes in another bank’s riskiness but on other information like reputation, soft information or public announcements that may be even unrelated to a particular bank.

Suggested Citation

  • Maria Semenova & Irina Andrievskaya, 2012. "Are banks peer disciplined? Evidence from post-crisis Russia," HSE Working papers WP BRP 07/FE/2012, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:07/fe/2012
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    References listed on IDEAS

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    2. Edgar Demetrio Tovar-García, 2016. "Exposure to interbank market and risk-taking by Mexican banks," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 39(111), pages 157-174, Septiembr.
    3. Tovar-García, Edgar Demetrio, 2016. "Who can better monitor a bank than another bank? Mechanisms of discipline in the Mexican interbank market ||¿Quién mejor que un banco para monitorear otro banco? Mecanismos de disciplina en el mercado," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 21(1), pages 205-229, June.
    4. Andrievskaya, Irina & Semenova, Maria, 2013. "Market discipline and the Russian interbank market," BOFIT Discussion Papers 29/2013, Bank of Finland, Institute for Economies in Transition.
    5. Andrievskaya, Irina & Semenova, Maria, 2013. "Market discipline and the Russian interbank market," BOFIT Discussion Papers 29/2013, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    Keywords

    market discipline; interbank market; Russia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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