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Market Discipline in Emerging Economies: Beyond Bank Fundamentals Author info | Abstract | Publisher info | Download info | Related research | Statistics Eduardo Levy Yeyati
Maria Soledad Martinez Peria
Sergio Schmukler
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This paper studies how institutional factors and systemic risks (driven by macroeconomic conditions) prevalent in emerging economies may impact market discipline among banks (traditionally understood as market responses to bank fundamentals). First, we discuss how certain institutional features of emerging economies (underdeveloped capital markets, pervasive government ownership of banks, greater guarantees, inadequate disclosure and transparency) may affect market responses to bank risk. Second, using the recent Argentine crisis as an illustration, we argue that systemic risks may exert an overwhelming impact on market behavior, overshadowing the link between the latter and bank fundamentals. Thus, market discipline, while missing in the traditional sense, may be indeed quite robust once systemic risks are factored in. We conclude that in emerging economies the analysis of market discipline should take into account the importance of institutional and systemic factors.
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Length: 16 pages
Date of creation: 2004Date of revision:
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Alain Ize & Miguel Kiguel & Eduardo Levy Yeyati, 2005.
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