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Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia

  • Alexei Karas
  • William Pyle

    ()

  • Koen Schoors

    ()

Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp829.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp829.

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Length: pages
Date of creation: 01 Jun 2006
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Handle: RePEc:wdi:papers:2006-829
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