Dynamic Depositor Discipline in U.S. Banks

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Dynamic Depositor Discipline in U.S. Banks

Author Info

Andrea M. Maechler
Kathleen McDill

Abstract

This paper investigates the presence of depositor discipline in the U.S. banking sector. We test whether depositors penalize (discipline) banks for poor performance by withdrawing their uninsured deposits. While focusing on the movements in uninsured deposits, we also account for the possibility that banks may be forced to pay a risk premium in the form of higher interest rates to induce depositors not to withdraw their uninsured deposits. Our results support the existence of depositor discipline: a weak bank may not necessarily be able to stop a deposit drain by raising its uninsured deposit interest rates.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/226.

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Length: 33 pages
Date of creation: 05 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/226

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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.:

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R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2006. "Can feedback from the jumbo CD market improve bank surveillance?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 135-175. [Downloadable!]

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