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Market Discipline and Conflicts of Interest Between Banks and Pension Funds

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  • Adolfo Barajas
  • Mario Catalan

Abstract

We study the behavior of private pension funds as large depositors in a banking system. Using panel data analysis, we examine whether, and if so how, pension funds influence market discipline in Argentina in the period 1998-2001. We find evidence that pension funds exert market discipline and this discipline gets stronger as the share of pension fund deposits in a bank rises. However, conflicts of interest undermine the disciplining role of pension funds. Specifically, pension funds allocate deposits to banks with weak fundamentals that own pension fund management companies. We conclude that forbidding banks' ownership of companies involved in pension fund management can enhance market discipline.

Suggested Citation

  • Adolfo Barajas & Mario Catalan, 2011. "Market Discipline and Conflicts of Interest Between Banks and Pension Funds," IMF Working Papers 11/282, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/282
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    References listed on IDEAS

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    1. Edward Whitehouse, 2009. "Pensions During the Crisis: Impact on Retirement Income Systems and Policy Responses," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 34(4), pages 536-547, October.
    2. Roberto Steiner & Adolfo Barajas, 2000. "Depositor Behavior and Market Discipline in Colombia," IMF Working Papers 00/214, International Monetary Fund.
    3. Berger, Allen N. & Turk-Ariss, Rima, 2010. "Do Depositors Discipline Banks? An International Perspective," Working Papers 11-25, University of Pennsylvania, Wharton School, Weiss Center.
    4. Catal N, Mario, 2004. "Pension funds and corporate governance in developing countries: what do we know and what do we need to know?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(02), pages 197-232, July.
    5. Ljungqvist, Alexander & Marston, Felicia & Starks, Laura T. & Wei, Kelsey D. & Yan, Hong, 2007. "Conflicts of interest in sell-side research and the moderating role of institutional investors," Journal of Financial Economics, Elsevier, vol. 85(2), pages 420-456, August.
    6. Adolfo Barajas & Emiliano Basco & V Hugo Juan-Ramón & Carlos Quarracino, 2007. "Banks During the Argentine Crisis: Were They All Hurt Equally? Did They All Behave Equally?," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 621-662, November.
    7. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-364, August.
    8. Charles W. Calomiris & Andrew Powell, 2001. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-99," NBER Chapters,in: Prudential Supervision: What Works and What Doesn't, pages 147-196 National Bureau of Economic Research, Inc.
    9. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    10. Clark, Gordon L., 2004. "Pension fund governance: expertise and organizational form," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(02), pages 233-253, July.
    11. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
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