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Sophisticated Discipline in a Nascent Deposit Market: Evidence from Post-Communist Russia

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Author Info
A. KARAS ()
W. PYLE
K. SCHOORS ()

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Abstract

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. Evidence for the standard form of price discipline, however, is weak. This combination of findings is unusual within the context of the literature on market discipline. But it is consistent with depositors interpreting the deposit rate as a complementary proxy of otherwise unobserved bank-level risk. Testing this hypothesis, 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.

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Publisher Info
Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 07/450.

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Length: 42 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:rug:rugwps:07/450

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Related research
Keywords: market discipline; deposit market; Russia;

Other versions of this item:

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
P2 - Economic Systems - - Socialist Systems and Transition Economies

This paper has been announced in the following NEP Reports:

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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  3. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April. [Downloadable!] (restricted)
    Other versions:
  4. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July. [Downloadable!] (restricted)
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  6. Koen Schoors, 2001. "The credit squeeze during Russia's early transition: A bank-based view," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 205-228, March. [Downloadable!] (restricted)
    Other versions:
  7. Caprio, Gerard & Honohan, Patrick, 2004. "Can the unsophisticated market provide discipline?," Policy Research Working Paper Series 3364, The World Bank. [Downloadable!]
  8. Jan Hanousek & Gerard Roland, 2001. "Banking Passivity and Regulatory Failure in Emerging Markets: Theory and Evidence from the Czech Republic," CERGE-EI Working Papers wp192, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
    Other versions:
  9. Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999. "Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico," Policy Research Working Paper Series 2058, The World Bank. [Downloadable!]
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  13. Thomas F. Hellmann & Kevin C. Murdock & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March. [Downloadable!] (restricted)
  14. Perotti, Enrico, 2002. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," International Finance, Blackwell Publishing, vol. 5(3), pages 359-99, Winter. [Downloadable!] (restricted)
    Other versions:
  15. Berger, Allen N, 1995. "The Relationship between Capital and Earnings in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 432-56, May. [Downloadable!] (restricted)
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  16. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  17. Hannan, Timothy H & Hanweck, Gerald A, 1988. "Bank Insolvency Risk and the Market for Large Certificates of Deposit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 203-11, May. [Downloadable!] (restricted)
    Other versions:
  18. Maria Soledad Martinez Peria, 2001. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Journal of Finance, American Finance Association, vol. 56(3), pages 1029-1051, 06. [Downloadable!] (restricted)
  19. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  20. Eduardo Levy Yeyati & Maria Soledad Martinez Peria & Sergio Schmukler, 2004. "Market Discipline in Emerging Economies: Beyond Bank Fundamentals," Business School Working Papers marketdiscipline, Universidad Torcuato Di Tella. [Downloadable!]
Full references

Cited by:
(explanations, 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.)

  1. Fungáová, Zuzana & Godlewski , Christophe J. & Weill, Laurent, 2009. "Asymmetric Information and Loan Spreads in Russia: Evidence from Syndicated Loans," BOFIT Discussion Papers 7/2009, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  2. Peresetsky , Anatoly, 2008. "Market Discipline and Deposit Insurance in Russia," BOFIT Discussion Papers 14/2008, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  3. Fungacova, Zuzana & Weill, Laurent, 2009. "How market power influences bank failures: Evidence from Russia," BOFIT Discussion Papers 12/2009, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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