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Do Depositors Punish Banks For "Bad" Behavior?: Examining Market Discipline In Argentina, Chile, And Mexico

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  • María Soledad Martínez
  • Sergio Schmukler

Abstract

This paper examines the existence of market discipline in the banking industries of Argentina, Chile, and Mexico during the 1980s and 1990s. Using a bank panel data set, we test for the presence of market discipline by studying whether depositors punish risky banks by withdrawing their deposits. We find that across countries and across deposit insurance schemes, market discipline exists even among small, insured depositors. Standardized coefficients and variance decomposition of deposits indicate that bank fundamentals are at least as important as other factors affecting deposits. GMM estimations confirm that the results are robust to the potential endogeneity of bank fundamentals.

Suggested Citation

  • María Soledad Martínez & Sergio Schmukler, 1999. "Do Depositors Punish Banks For "Bad" Behavior?: Examining Market Discipline In Argentina, Chile, And Mexico," Working Papers Central Bank of Chile 48, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:48
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    Cited by:

    1. Cameron Haworth & Liam Gillies & Tobias Irrcher, 2018. "Measuring Market Discipline in New Zealand," Reserve Bank of New Zealand Analytical Notes series AN2018/07, Reserve Bank of New Zealand.
    2. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, vol. 68(1), pages 5-22, March.
    3. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
    4. Semenova Maria, 2007. "How depositors discipline banks: the case of Russia," EERC Working Paper Series 07-02e, EERC Research Network, Russia and CIS.
    5. infocede, 2001. "Depositor behavior and market discipline in Colombia," Documentos CEDE 20095, Universidad de los Andes, Facultad de Economía, CEDE.
    6. Caprio,Gerard & Honohan, Patrick, 1999. "Beyond capital ideals : restoring banking stability," Policy Research Working Paper Series 2235, The World Bank.

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    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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