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Deposit insurance and brokerage firms: impacts on the market discipline of the Brazilian banking industry

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  • Marília Pinheiro Ohlson
  • Gerlando Augusto Sampaio Franco de Lima
  • Tony Takeda

Abstract

This study seeks to assess the phenomenon of market discipline in Brazil and analyze whether the increase in deposit insurance coverage in 2013 and the role of brokerage firms in the funding market changed this discipline. The database includes accounting information of Brazilian banks from 2010 to 2017. We calculated the parameters using the Systemic Generalized Method of Moments (GMM-Sys). We found evidence of market discipline through interest rate and maturity of deposits, with the size of banks and their capitalization being the main disciplining factors. Deposit insurance has reduced market discipline for both interest rate and maturity mechanisms, while brokerage firms have reduced the size and capitalization advantages of banks. The results did not indicate the existence of market discipline through the quantity mechanism and deposit insurance did not change this scenario. Brokerage firms also reduced the size and capitalization advantages on this mechanism. However, significant indicators in the market discipline literature, mainly related to banks' credit portfolios, were not relevant in the Brazilian market, indicating discipline might be reinforced. The results were similar in the analysis excluding “too-big-to-fail” banks, with slightly higher parameters, indicating the discipline is stronger for smaller banks.

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  • Marília Pinheiro Ohlson & Gerlando Augusto Sampaio Franco de Lima & Tony Takeda, 2021. "Deposit insurance and brokerage firms: impacts on the market discipline of the Brazilian banking industry," Working Papers Series 542, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:542
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    1. Kaelo Mpho Ntwaepelo, 2023. "Bank Stability versus Financial Development: A Generous Deposit Insurer's Dilemma," Economics Discussion Papers em-dp2023-09, Department of Economics, University of Reading.

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