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Market price accounting and depositor discipline in Japanese regional banks

Listed author(s):
  • Mark M. Spiegel
  • Nobuyoshi Yamori

We examine the determinants of Japanese regional bank decisions concerning pricing unrealized losses or gains to market. We also examine the impact of these decisions on the intensity of depositor discipline, in the form of the sensitivity of deposit growth to bank financial conditions. To obtain consistent estimates of depositor discipline, we first model and estimate the bank pricing-to-market decision and then estimate the intensity of depositor discipline after conditioning for that decision. We find that banks were less likely to price to market the larger were their unrealized securities losses. We also find statistically significant evidence of depositor discipline among banks that elected to price their assets to market. Our results indicate that depositor discipline was more intense for the subset of banks that priced-to-market, suggesting that increased transparency may enhance depositor discipline.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2004-27.

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Date of creation: 2004
Handle: RePEc:fip:fedfwp:2004-27
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  1. Mark M. Spiegel & Nobuyoshi Yamori, 2004. "The Evolution Of Bank Resolution Policies In Japan: Evidence From Market Equity Values," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(1), pages 115-132.
  2. Mark M. Spiegel & Nobuyoshi Yamori, 2003. "Determinants of voluntary bank disclosure: evidence from Japanese Shinkin banks," Pacific Basin Working Paper Series 03-03, Federal Reserve Bank of San Francisco.
  3. 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.
  4. Jeffery W. Gunther & Robert R. Moore, 2000. "Financial statements and reality: do troubled banks tell all?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 30-35.
  5. Gilbert, R. Alton & Vaughan, Mark D., 2001. "Do depositors care about enforcement actions?," Journal of Economics and Business, Elsevier, vol. 53(2-3), pages 283-311.
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