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Market discipline by depositors : impact of deposit insurance on the Indonesian banking sector

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  • Hamada, Miki

Abstract

This paper investigates market discipline by depositors in the Indonesian banking sector. Does depositor discipline fulfill its role in Indonesia? Does deposit insurance affect depositor behavior thereby imposing discipline on banks? These questions are empirically examined using panel data on Indonesian commercial banks from 1998 to 2009. In Indonesia deposit insurance was introduced in 2005. Depositor discipline is examined by two measures: change in the amount of deposits and interest rate. The empirical results show that depositors pay attention to bank soundness and riskiness and select banks based on the bank's condition with particular attention paid to equity ratio. It is found that depositors impose discipline on banks, but it varies according to regulatory and economic circumstances.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/1078/1/ARRIDE_Discussion_No.292_hamada.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 292.

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Date of creation: Mar 2011
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Publication status: Published in IDE Discussion Paper. No. 292. 2011.3
Handle: RePEc:jet:dpaper:dpaper292

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Related research

Keywords: Indonesia; Banks; Insurance; Deposit insurance; Market discipline; Depositor discipline;

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References

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  1. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-64, August.
  2. Asl? Demirgüç-Kunt & Edward J. Kane & Luc Laeven (ed.), 2008. "Deposit Insurance around the World: Issues of Design and Implementation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042541.
  3. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
  4. David S. Hoelscher & Michael Taylor & Ulrich H. Klueh, 2006. "The Design and Implementation of Deposit Insurance Systems," IMF Occasional Papers 251, International Monetary Fund.
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Cited by:
  1. Emmanuelle Nys & Amine Tarazi & Irwan Trinugroho, 2013. "Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy," Working Papers hal-00916513, HAL.

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