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Market discipline by depositors : impact of deposit insurance on the Indonesian banking sector


  • Hamada, Miki


This paper investigates market discipline by depositors in the Indonesian banking sector. Does depositor discipline fulfill its role in Indonesia? Does deposit insurance affect depositor behavior thereby imposing discipline on banks? These questions are empirically examined using panel data on Indonesian commercial banks from 1998 to 2009. In Indonesia deposit insurance was introduced in 2005. Depositor discipline is examined by two measures: change in the amount of deposits and interest rate. The empirical results show that depositors pay attention to bank soundness and riskiness and select banks based on the bank's condition with particular attention paid to equity ratio. It is found that depositors impose discipline on banks, but it varies according to regulatory and economic circumstances.

Suggested Citation

  • Hamada, Miki, 2011. "Market discipline by depositors : impact of deposit insurance on the Indonesian banking sector," IDE Discussion Papers 292, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper292

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    References listed on IDEAS

    1. Asl? Demirgüç-Kunt & Edward J. Kane & Luc Laeven (ed.), 2008. "Deposit Insurance around the World: Issues of Design and Implementation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042541, January.
    2. David S. Hoelscher & Michael W Taylor & Ulrich H Klueh, 2006. "The Design and Implementation of Deposit Insurance Systems," IMF Occasional Papers 251, International Monetary Fund.
    3. 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.
    4. 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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    Cited by:

    1. Emmanuelle Nys & Amine Tarazi & Irwan Trinugroho, 2013. "Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy," Working Papers hal-00916513, HAL.
    2. Nys, Emmanuelle & Tarazi, Amine & Trinugroho, Irwan, 2015. "Political connections, bank deposits, and formal deposit insurance," Journal of Financial Stability, Elsevier, vol. 19(C), pages 83-104.

    More about this item


    Indonesia; Banks; Insurance; Deposit insurance; Market discipline; Depositor discipline;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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