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Interbank Deposits and Market discipline: Evidence from Central and Eastern European Banks

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  • Isabelle Distinguin

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Tchudjane Kouassi

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Amine Tarazi

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

Abstract

There is a considerable debate on the role played by market discipline in the banking industry. Using data for 207 banks across 10 Central and Eastern European countries, this paper empirically analyzes the disciplining role of interbank deposits. We find that market discipline has been effective in Central and Eastern Europe since the implementation of explicit deposit insurance. However, several factors affect the strength of this discipline. State-owned banks are not disciplined probably because they benefit from implicit insurance. Institutional and legal factors, and resolution strategies adopted by countries during banking crises also impact bank risk and the effectiveness of market discipline. Our results indicate that stronger regulatory discipline reduces risk but also weakens market discipline.
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Suggested Citation

  • Isabelle Distinguin & Tchudjane Kouassi & Amine Tarazi, 2013. "Interbank Deposits and Market discipline: Evidence from Central and Eastern European Banks," Post-Print hal-00915703, HAL.
  • Handle: RePEc:hal:journl:hal-00915703
    DOI: 10.1016/j.jce.2012.07.005
    Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-00915703
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    1. repec:taf:jbemgt:v:18:y:2017:i:5:p:954-973 is not listed on IDEAS
    2. Wang, Li & Menkhoff, Lukas & Schröder, Michael & Xu, Xian, 2015. "Politicians' promotion incentives and bank risk exposure in China," Frankfurt School - Working Paper Series 216, Frankfurt School of Finance and Management.
    3. Janda, Karel & Kravtsov, Oleg, 2017. "Micro-Level Evidences of Moral Hazard in the European Financial Institutions," MPRA Paper 77233, University Library of Munich, Germany.
    4. Günther, Susanne, 2016. "Peer Monitoring, Eigentümerstruktur und die Stabilität von Banken: Eine empirische Analyse für den deutschen genossenschaftlichen Bankensektor," Arbeitspapiere 167, University of Münster, Institute for Cooperatives.
    5. Ion Lapteacru, 2016. "Income and funding structures, banking regulation and bank risk-taking: The role of ownership in Central and Eastern European banks," Working Papers hal-01301825, HAL.
    6. Prabha, Apanard (Penny) & Wihlborg, Clas, 2014. "Implicit guarantees, business models and banks’ risk-taking through the crisis: Global and European perspectives," Journal of Economics and Business, Elsevier, vol. 76(C), pages 10-38.
    7. Ion Lapteacru, 2016. "Bank Risk in Central and Eastern European Countries: Does Ownership Matter?," Working Papers hal-01338767, HAL.
    8. Tovar-García, Edgar Demetrio, 2016. "Who can better monitor a bank than another bank? Mechanisms of discipline in the Mexican interbank market ||¿Quién mejor que un banco para monitorear otro banco? Mecanismos de disciplina en el mercado," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 21(1), pages 205-229, June.
    9. Kaposty, Florian & Pfingsten, Andreas & Domikowsky, Christian, 2017. "Market Discipline, Deposit Insurance, and Competitive Advantages: Evidence from the Financial Crisis," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168146, Verein für Socialpolitik / German Economic Association.

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