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Sophisticated discipline in a nascent deposit market: Evidence from post-communist Russia

  • Karas, Alexei

    ()

    (BOFIT)

  • Pyle, William

    (BOFIT)

  • Schoors, Koen

    (BOFIT)

Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. We estimate the deposit supply function and show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction. These findings are consistent with depositors interpreting the deposit rate itself as a complementary proxy of otherwise unobserved bank-level risk.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp1306.pdf
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 13/2006.

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Length: 42 pages
Date of creation: 26 Oct 2006
Date of revision:
Handle: RePEc:hhs:bofitp:2006_013
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
Web page: http://www.suomenpankki.fi/bofit_en/
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  1. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  3. Allen Berger, 1994. "The Relationship Between Capital and Earnings in Banking," Center for Financial Institutions Working Papers 94-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July.
  5. Timothy H. Hannan & Gerald A. Hanweck, 1986. "Bank insolvency risk and the market for large certificates of deposit," Working Papers in Banking, Finance and Microeconomics 86-1, Board of Governors of the Federal Reserve System (U.S.).
  6. 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.
  7. Eduardo Levy Yeyati & Maria Soledad Martinez Peria & Sergio Schmukler, 2004. "Market Discipline in Emerging Economies: Beyond Bank Fundamentals," Business School Working Papers marketdiscipline, Universidad Torcuato Di Tella.
  8. Schoors, Koen, 1999. "The Credit Squeeze During Russia's Early Transition: A Bank-Based View," CEPR Discussion Papers 2229, C.E.P.R. Discussion Papers.
  9. Demirguc-Kunt, Asl1 & Huizinga, Harry, 1999. "Market discipline and financial safety net design," Policy Research Working Paper Series 2183, The World Bank.
  10. Brewer, Elijah, III & Mondschean, Thomas H, 1994. "An Empirical Test of the Incentive Effects of Deposit Insurance: The Case of Junk Bonds at Savings and Loan Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 146-64, February.
  11. Perotti, Enrico, 2002. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," International Finance, Wiley Blackwell, vol. 5(3), pages 359-99, Winter.
  12. Jan Hanousek & Gerard Roland, 2001. "Banking Passivity And Regulatory Failure In Emerging Markets: Theory And Evidence From The Czech Republic," William Davidson Institute Working Papers Series 424, William Davidson Institute at the University of Michigan.
  13. Caprio, Gerard & Honohan, Patrick, 2004. "Can the unsophisticated market provide discipline?," Policy Research Working Paper Series 3364, The World Bank.
  14. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  15. Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
  16. William Tompson, 2004. "Banking Reform in Russia: Problems and Prospects," OECD Economics Department Working Papers 410, OECD Publishing.
  17. Khaled Sherif & Michael Borish & Alexandra Gross, 2003. "State-owned Banks in the Transition : Origins, Evolution, and Policy Responses," World Bank Publications, The World Bank, number 14851.
  18. Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999. "Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico," Policy Research Working Paper Series 2058, The World Bank.
  19. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  20. Cook, Douglas O & Spellman, Lewis J, 1994. "Repudiation Risk and Restitution Costs: Toward Understanding Premiums on Insured Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 439-59, August.
  21. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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