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Does Depositors' Discipline by Households Exist? (in Japanese)

  • Shizuka Sekita

    ()

    (Graduate School of Economics, Osaka University)

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    This paper tests for the presence of depositors' discipline by households and examines the impact of revisions of the deposit insurance system, changes in the financial condition of the banking sector as a whole, and household characteristics on the extent of depositors' discipline using households' subjective evaluation of the financial condition of the banks with which they do business. I find evidence of the presence of depositors' discipline by households even during periods when bank deposits were fully protected by the deposit insurance system. The extent of depositors' discipline by households increased even before the abolition of the full protection of term deposits because households began making adjustments in anticipation of the proposed change, but only large depositors (households holding bank deposits of over 10 million yen) increased the extent of depositors' discipline at that time. In addition, the revision of the deposit insurance system that extended the full protection of ordinary deposits for another two years and fully protected payment and settlement deposits permanently decreased depositors' discipline of all households, regardless of how much bank deposits they hold. Moreover, various household characteristics affect the extent of depositors' discipline, the most important of which is awareness of the deposit insurance system (overall financial knowledge). I find that lack of awareness of the deposit insurance system (lack of overall financial knowledge) weakens the extent of depositors' discipline by a significant amount.

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    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 05-10.

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    Length: 48 pages
    Date of creation: May 2005
    Date of revision:
    Handle: RePEc:osk:wpaper:0510
    Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/Email:


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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    2. Christopher D. Carroll & Andrew A. Samwick, 1993. "How important is precautionary saving?," Working Paper Series / Economic Activity Section 145, Board of Governors of the Federal Reserve System (U.S.).
    3. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    4. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    5. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-64, August.
    6. 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.
    7. Arthur B. Kennickell & Myron L. Kwast & Martha Starr-McCluer, 1995. "Households' deposit insurance coverage: evidence and analysis of potential reforms," Finance and Economics Discussion Series 95-5, Board of Governors of the Federal Reserve System (U.S.).
    8. Kotaro TSURU, 2003. "Depositors' selection of banks and the deposit insurance system in Japan: Empirical evidence and its policy implications," Discussion papers 03024, Research Institute of Economy, Trade and Industry (RIETI).
    9. Elizabeth Kiser, 2002. "Predicting Household Switching Behavior and Switching Costs at Depository Institutions," Review of Industrial Organization, Springer, vol. 20(4), pages 349-365, June.
    10. Kaoru Hosono & Hiroko Iwaki & Kotaro Tsuru, 2004. "Bank Regulation and Market Discipline around the World," Discussion papers 04031, Research Institute of Economy, Trade and Industry (RIETI).
    11. Goldberg, Lawrence G. & Hudgins, Sylvia C., 2002. "Depositor discipline and changing strategies for regulating thrift institutions," Journal of Financial Economics, Elsevier, vol. 63(2), pages 263-274, February.
    12. María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174 Central Bank of Chile.
    13. 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.
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