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Financial liberalization, market discipline and bank risk

  • William C. Gruben
  • Jahyeong Koo
  • Robert R. Moore
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    In the literature on systemic banking crises, two common themes are: (1) Risky lending often follows bank liberalization. (2) Lack of market discipline encourages risky lending. That not all liberalizations are followed by financial crisis and that financial systems without market discipline sometimes operate without incident invites examination of these themes. In a test of six countries, we find that our measure of bank risk increases significantly in the wake of financial liberalizations, but only where depositors fail to discipline banks. Our measures of market discipline and bank risk, however, are persistently inversely related

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    File URL: http://dallasfed.org/assets/documents/research/claepapers/2003/lawp0303.pdf
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    Paper provided by Federal Reserve Bank of Dallas in its series Center for Latin America Working Papers with number 0303.

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    Date of creation: 2003
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    Handle: RePEc:fip:feddcl:0303
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    9. 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.
    10. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
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