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Depositor Behavior and Market Discipline in Colombia

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  • Roberto Steiner
  • Adolfo Barajas

Abstract

This study examines how depositors choose among different banks and over time in Colombia, focusing on whether they discipline bank behavior. By controlling for a more comprehensive set of risk/return factors, the study improves upon conventional market discipline tests. Panel data estimations for 1985-99 show that depositors prefer banks with stronger fundamentals, and that banks tend to improve their fundamentals after being “punished” by depositors. Banks with stronger fundamentals benefit from lower interest costs and higher lending rates. Market (or “regulatory”) discipline therefore appears to exist in Colombia, perhaps thanks to certain key design features of the deposit insurance scheme.

Suggested Citation

  • Roberto Steiner & Adolfo Barajas, 2000. "Depositor Behavior and Market Discipline in Colombia," IMF Working Papers 00/214, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/214
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    Cited by:

    1. Sergio L. Schmukler & Eduardo Levy-Yeyati & Maria Soledad Martinez Peria, 2004. "Market Discipline under Systemic Risk: Evidence from Bank Runs in Emerging Economies," Econometric Society 2004 Latin American Meetings 318, Econometric Society.
    2. Önder, Zeynep & Özyildirim, Süheyla, 2008. "Market Reaction to Risky Banks: Did Generous Deposit Guarantee Change It?," World Development, Elsevier, vol. 36(8), pages 1415-1435, August.
    3. Ece Ungan & Selçuk Caner & Süheyla Özyıldırım, 2008. "Depositors’ Assessment of Bank Riskiness in the Russian Federation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 33(2), pages 77-100, April.
    4. Kathleen McDill & Andrea M. Maechler, 2003. "Dynamic Depositor Discipline in U.S. Banks," IMF Working Papers 03/226, International Monetary Fund.
    5. Hasan, Iftekhar & Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2013. "Market discipline during crisis: Evidence from bank depositors in transition countries," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5436-5451.
    6. Edda Zoli & Danyang Xie & Reza Vaez-Zadeh, 2002. "Modis; A Market-Oriented Deposit Insurance Scheme," IMF Working Papers 02/207, International Monetary Fund.
    7. Günther, Susanne, 2014. "Die Vermeidung von Bank Runs und der Erhalt von Marktdisziplin: Das Dilemma der Bankenregulierung?," Arbeitspapiere 142, University of Münster, Institute for Cooperatives.
    8. Arnaud Bourgain & Patrice Pieretti & Skerdilajda Zanaj, 2009. "International Financial competition and bank risk-taking in emerging economies," CREA Discussion Paper Series 09-08, Center for Research in Economic Analysis, University of Luxembourg.
    9. Carlos Budnevich L. & Helmut Franken M., 2003. "Market Discipline in Depositors’ Behavior and the Role of Risk-Rating Agencies: The Case of Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(2), pages 45-70, August.
    10. Barajas, Adolfo & Catalán, Mario, 2015. "Market discipline and conflicts of interest between banks and pension funds," Journal of Financial Intermediation, Elsevier, vol. 24(3), pages 411-440.
    11. 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.
    12. Ghosh, Saibal & Das, Abhiman, 2006. "Depositor discipline in Indian banking: Separating facts from folklore," MPRA Paper 17427, University Library of Munich, Germany.
    13. Adolfo Barajas & Mario Catalan, 2011. "Market Discipline and Conflicts of Interest Between Banks and Pension Funds," IMF Working Papers 11/282, International Monetary Fund.
    14. Maechler, Andrea M. & McDill, Kathleen M., 2006. "Dynamic depositor discipline in US banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1871-1898, July.
    15. Abhiman Das & Saibal Ghosh, 2004. "Market Discipline In The Indian Banking Sector: An Empirical Exploration," Finance 0410020, EconWPA.
    16. Disli, Mustafa & Schoors, Koen & Meir, Jos, 2013. "Political connections and depositor discipline," Journal of Financial Stability, Elsevier, pages 804-819.
    17. Cubillas, Elena & Fonseca, Ana Rosa & González, Francisco, 2012. "Banking crises and market discipline: International evidence," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2285-2298.
    18. Juan Carlos Echeverry Garzón & Ángela María Fonseca Galvis, 2005. "The Social Impact of the Banking Sector in Colombia, 1995 – 2002," DEGIT Conference Papers c010_039, DEGIT, Dynamics, Economic Growth, and International Trade.
    19. Li, Gan & Wen-Yao, Wang, 2010. "Partial Deposit Insurance and Moral Hazard in Banking," MPRA Paper 25798, University Library of Munich, Germany.

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