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Dynamic Depositor Discipline in U.S. Banks

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  • Kathleen McDill
  • Andrea M. Maechler

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.

Suggested Citation

  • Kathleen McDill & Andrea M. Maechler, 2003. "Dynamic Depositor Discipline in U.S. Banks," IMF Working Papers 2003/226, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/226
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    References listed on IDEAS

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    3. Hadad, Muliaman D. & Agusman, Agusman & Monroe, Gary S. & Gasbarro, Dominic & Zumwalt, James Kenton, 2011. "Market discipline, financial crisis and regulatory changes: Evidence from Indonesian banks," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1552-1562, June.

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