Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999
In the early 1990s, after decades of high inflation and financial repression, Argentina embarked on a course of macroeconomic and bank regulatory reform. Bank regulatory policy promoted privatization, financial liberalization, and free entry, limited safety net support, and established a novel mix of regulatory and market discipline to ensure stable growth of the banking system during the liberalization process. Argentina suffered some fallout from the Mexican tequila crisis of 1995, but its response to that crisis (allowing weak banks to close) and the redoubling of regulatory efforts to promote market discipline after the crisis made Argentina's banking system quite resilient during the Asian, Russian, and Brazilian crises. Argentina's bank regulatory system now is widely regarded as one of the two or three most successful among emerging market economies. This paper traces the evolution of the regulatory policy changes of the 1990s and shows that the reliance on market discipline has played an important role in prudential regulation by encouraging proper risk management by banks. There is substantial heterogeneity among banks in the interest rates they pay for debt and the rate of growth of their deposits, and that heterogeneity is traceable to fundamental attributes of banks that affect the riskiness of deposits (i.e. asset risk and leverage). Moreover, market perceptions of default risk are mean-reverting, indicating that market discipline encourages banks to respond to increases in default risk by limiting asset risk or lowering leverage.
|Date of creation:||May 2000|
|Publication status:||published as Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-99 , Charles W. Calomiris, Andrew Powell. in Prudential Supervision: What Works and What Doesn't , Mishkin. 2001|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- 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.
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- María Soledad Martínez & Sergio Schmukler, 1999.
"Do Depositors Punish Banks For "Bad" Behavior?: Examining Market Discipline In Argentina, Chile, And Mexico,"
Working Papers Central Bank of Chile
48, Central Bank of Chile.
- Soledad, M.S. & Schmukler, S., 1999. "Do Depositors Punish Banks for "Bad"Behavior?: Examining Market Discipline in Argentina, Chile, and Mexico," Papers 48, Cambridge - Risk, Information & Quantity Signals.
- repec:aei:rpbook:53208 is not listed on IDEAS
- Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
- Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
- Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank. Full references (including those not matched with items on IDEAS)
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