Market discipline during crisis: Evidence from bank depositors in transition countries
The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in a worse financial condition than their subsidiaries. This situation created a unique opportunity to study new aspects of market discipline exercised by non-financial depositors. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors’ actions were more strongly influenced by negative press rumors concerning parent companies than by fundamentals. The impact of rumors was especially perceptible when rumors turned out ex post to be founded. Additionally, we document that public aid announcements were primarily interpreted by depositors as confirmation of a parent company’s financial distress. Our results indicate that depositors react rationally to sources of information other than financial statements; this discovery has policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Ioannidou, Vasso P. & Penas, María Fabiana, 2010. "Deposit insurance and bank risk-taking: Evidence from internal loan ratings," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 95-115, January.
- Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "The influence of political factors on commercial banks in Central European countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 759-777.
- de Haas, Ralph & van Lelyveld, Iman, 2006.
"Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis,"
Journal of Banking & Finance,
Elsevier, vol. 30(7), pages 1927-1952, July.
- Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued) 109, Netherlands Central Bank.
- Guggenberger, Patrik, 2010. "The impact of a Hausman pretest on the size of a hypothesis test: The panel data case," Journal of Econometrics, Elsevier, vol. 156(2), pages 337-343, June.
- Gropp, R. & Vesala, J., 2001.
"Deposit Insurance and Moral Hazard: Does the Counterfactual Matter?,"
47, Quebec a Montreal - Recherche en gestion.
- Gropp, Reint & Vesala, Jukka, 2001. "Deposit insurance and moral hazard: does the counterfactual matter?," Working Paper Series 0047, European Central Bank.
- Uchida, Hirofumi & Satake, Mitsuhiko, 2009. "Market discipline and bank efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 792-802, December.
- Blundell, Richard & Bond, Stephen, 1998.
"Initial conditions and moment restrictions in dynamic panel data models,"
Journal of Econometrics,
Elsevier, vol. 87(1), pages 115-143, August.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Charles W. Calomiris & Andrew Powell, 2001. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-99," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 147-196 National Bureau of Economic Research, Inc.
- Alexei Karas & William Pyle & Koen Schoors, 2013. "Deposit Insurance, Banking Crises, and Market Discipline: Evidence from a Natural Experiment on Deposit Flows and Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 179-200, 02.
- Thomas H. Mondschean & Timothy P. Opiela, 1998.
"Bank time deposit rates and market discipline in Poland: the impact of state ownership and deposit insurance reform,"
Working Paper Series
WP-98-13, Federal Reserve Bank of Chicago.
- Thomas Mondschean & Timothy Opiela, 1999. "Bank Time Deposit Rates and Market Discipline in Poland: The Impact of State Ownership and Deposit Insurance Reform," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(3), pages 179-196, May.
- Peresetsky , Anatoly, 2008. "Market Discipline and Deposit Insurance in Russia," BOFIT Discussion Papers 14/2008, Bank of Finland, Institute for Economies in Transition.
- 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.
- Hess, Kurt & Feng, Gary, 2007. "Is there market discipline for New Zealand non-bank financial institutions?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 326-340, October.
- Eduardo Levy Yeyati & Maria Soledad Martinez Peria & Sergio Schmukler, 2004.
"Market Discipline under Systemic Risk: Evidence from Bank Runs in Emerging Economies,"
Business School Working Papers
systemicrisk, Universidad Torcuato Di Tella.
- Levy-Yeyati, Eduardo & Martinez Peria, Maria Soledad & Schmukler, Sergio L., 2004. "Market discipline under systemic risk - evidence from bank runs in emerging economies," Policy Research Working Paper Series 3440, The World Bank.
- Sergio L. Schmukler & Eduardo Levy-Yeyati & Maria Soledad Martinez Peria, 2004. "Market Discipline under Systemic Risk: Evidence from Bank Runs in Emerging Economies," Econometric Society 2004 Latin American Meetings 318, Econometric Society.
- Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004.
"Bank performance, efficiency and ownership in transitition countries,"
BOFIT Discussion Papers
7/2004, Bank of Finland, Institute for Economies in Transition.
- Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2005. "Bank performance, efficiency and ownership in transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 31-53, January.
- Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
- Ellis, David M. & Flannery, Mark J., 1992. "Does the debt market assess large banks, risk? : Time series evidence from money center CDs," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 481-502, December.
- John S. Jordan, 2000. "Depositor discipline at failing banks," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 15-28.
- David Roodman, 2009.
"How to do xtabond2: An introduction to difference and system GMM in Stata,"
StataCorp LP, vol. 9(1), pages 86-136, March.
- David Roodman, 2006. "How to Do xtabond2: An Introduction to "Difference" and "System" GMM in Stata," Working Papers 103, Center for Global Development.
- Shimizu, Katsutoshi, 2009. "Is the information produced in the stock market useful for depositors?," Finance Research Letters, Elsevier, vol. 6(1), pages 34-39, March.
- Guggenberger, Patrik, 2010. "The Impact Of A Hausman Pretest On The Asymptotic Size Of A Hypothesis Test," Econometric Theory, Cambridge University Press, vol. 26(02), pages 369-382, April.
- Andrei Shleifer, 1998.
"State versus Private Ownership,"
Journal of Economic Perspectives,
American Economic Association, vol. 12(4), pages 133-150, Fall.
- Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
- Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
- Kraft, Evan & Galac, Tomislav, 2007. "Deposit interest rates, asset risk and bank failure in Croatia," Journal of Financial Stability, Elsevier, vol. 2(4), pages 312-336, March.
- Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, vol. 7(4), pages 283-299, December.
- 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.
- Opiela, Timothy P., 2004. "Was there an implicit full guarantee at financial institutions in Thailand? Evidence of risk pricing by depositors," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 519-541, September.
- Peresetsky, Anatoly, 2008. "Market discipline and deposit insurance in Russia," BOFIT Discussion Papers 14/2008, Bank of Finland, Institute for Economies in Transition.
- Timothy H. Hannan & Gerald A. Hanweck, 1986.
"Bank insolvency risk and the market for large certificates of deposit,"
Working Papers in Banking, Finance and Microeconomics
86-1, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Allen, Franklin & Hryckiewicz, Aneta & Kowalewski, Oskar & Tumer-Alkan, Gunseli, 2010. "Transmission of Bank Liquidity Shocks in Loan and Deposit Markets: The Role of Interbank Borrowing and Market Monitoring," Working Papers 10-28, University of Pennsylvania, Wharton School, Weiss Center.
- 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.
- María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174 Central Bank of Chile.
- Fabio Panetta & Thomas Faeh & Giuseppe Grande & Corrinne Ho & Michael King & Aviram Levy & Federico M. Signoretti & Marco Taboga & Andrea Zaghini, 2009.
"An assessment of financial sector rescue programmes,"
Questioni di Economia e Finanza (Occasional Papers)
47, Bank of Italy, Economic Research and International Relations Area.
- Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48, June.
- Sangkyun Park & Stavros Peristiani, 2001.
"Are bank shareholders enemies of regulators or a potential source of market discipline?,"
138, Federal Reserve Bank of New York.
- Park, Sangkyun & Peristiani, Stavros, 2007. "Are bank shareholders enemies of regulators or a potential source of market discipline?," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2493-2515, August.
- Maechler, Andrea M. & McDill, Kathleen M., 2006. "Dynamic depositor discipline in US banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1871-1898, July.
- Roberto Steiner & Adolfo Barajas, 2000. "Depositor Behavior and Market Discipline in Colombia," IMF Working Papers 00/214, International Monetary Fund.
- Önder, Zeynep & Özyildirim, Süheyla, 2008. "Market Reaction to Risky Banks: Did Generous Deposit Guarantee Change It?," World Development, Elsevier, vol. 36(8), pages 1415-1435, August.
- Brewer, Elijah, III & Mondschean, Thomas H, 1994. "An Empirical Test of the Incentive Effects of Deposit Insurance: The Case of Junk Bonds at Savings and Loan Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 146-64, February.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Prean, Nora & Stix, Helmut, 2011. "The effect of raising deposit insurance coverage in times of financial crisis – Evidence from Croatian microdata," Economic Systems, Elsevier, vol. 35(4), pages 496-511.
- Goldberg, Lawrence G. & Hudgins, Sylvia C., 2002. "Depositor discipline and changing strategies for regulating thrift institutions," Journal of Financial Economics, Elsevier, vol. 63(2), pages 263-274, February.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5436-5451. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.