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Do Depositors Punish Banks For Bad Behavior Market Discipline Deposit Insurance And Banking Crises
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Book Synopsis Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises by : Maria Soledad Martinez Peria
Download or read book Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises written by Maria Soledad Martinez Peria and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically investigates two issues largely unexplored by the literature on market discipline. We evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline. We focus on the experiences of Argentina, Chile, and Mexico during the 1980s and 1990s. We find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates. Deposit insurance does not appear to diminish the extent of market discipline. Aggregate shocks affect deposits and interest rates during crises, regardless of bank fundamentals; while investors' responsiveness to bank risk taking increases in the aftermath of crises.
Book Synopsis Do Depositors Punish Banks for "bad" Behavior? by : Maria Soledad Martinez Peria
Download or read book Do Depositors Punish Banks for "bad" Behavior? written by Maria Soledad Martinez Peria and published by . This book was released on 1999 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Depositors Discipline Banks and Did Government Actions During the Recent Crisis Reduce this Discipline? An International Perspective by : Allen N. Berger
Download or read book Do Depositors Discipline Banks and Did Government Actions During the Recent Crisis Reduce this Discipline? An International Perspective written by Allen N. Berger and published by . This book was released on 2014 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent financial crisis highlights the importance of both regulatory and market discipline. Government reactions to the crisis included expanding deposit insurance coverage and rescuing troubled institutions, including some institutions that might not otherwise be considered too important to fail. These actions may have the unintended consequence of a reduction in market discipline that might otherwise penalize banks for risk-taking behavior. Alternatively, market discipline may have increased during the crisis due to heightened awareness of the risks of bank failures. To address these issues, we first test for the presence of depositor discipline effects in the period leading up to the financial crisis in both the US and the EU. Second, we test whether depositor discipline decreased or increased during the crisis. We find significant depositor discipline prior to the crisis in both the US and EU, but this varies between the US and the EU as well as with banking organization size and with listed versus unlisted status. We also find that depositor discipline mostly decreased during the crisis, except for the case of small US banks.
Book Synopsis Do Deposits Punish Banks for "bad" Behavior? by : Maria Soledad Matinez Peria
Download or read book Do Deposits Punish Banks for "bad" Behavior? written by Maria Soledad Matinez Peria and published by . This book was released on 1999 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dynamic Depositor Discipline in U.S. Banks by : Andrea M. Maechler
Download or read book Dynamic Depositor Discipline in U.S. Banks written by Andrea M. Maechler and published by International Monetary Fund. This book was released on 2003-11-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the presence of depositor discipline in the U.S. banking sector. We test whether depositors penalize (discipline) banks for poor performance by withdrawing their uninsured deposits. While focusing on the movements in uninsured deposits, we also account for the possibility that banks may be forced to pay a risk premium in the form of higher interest rates to induce depositors not to withdraw their uninsured deposits. Our results support the existence of depositor discipline: a weak bank may not necessarily be able to stop a deposit drain by raising its uninsured deposit interest rates.
Book Synopsis Post-resolution Treatment of Depositors at Failed Banks by : George G. Kaufman
Download or read book Post-resolution Treatment of Depositors at Failed Banks written by George G. Kaufman and published by . This book was released on 2001 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Depositors Punish Banks for "bad" Behaviour? by : Maria Soledad Martinez Peria
Download or read book Do Depositors Punish Banks for "bad" Behaviour? written by Maria Soledad Martinez Peria and published by . This book was released on 1999 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Preferred Sources of Market Discipline by : Douglas Darrell Evanoff
Download or read book Preferred Sources of Market Discipline written by Douglas Darrell Evanoff and published by . This book was released on 1992 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Shadow Banking and Market Discipline on Traditional Banks by : Mr.Anil Ari
Download or read book Shadow Banking and Market Discipline on Traditional Banks written by Mr.Anil Ari and published by International Monetary Fund. This book was released on 2017-12-22 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a model in which shadow banking arises endogenously and undermines market discipline on traditional banks. Depositors' ability to re-optimize in response to crises imposes market discipline on traditional banks: these banks optimally commit to a safe portfolio strategy to prevent early withdrawals. With costly commitment, shadow banking emerges as an alternative banking strategy that combines high risk-taking with early liquidation in times of crisis. We bring the model to bear on the 2008 financial crisis in the United States, during which shadow banks experienced a sudden dry-up of funding and liquidated their assets. We derive an equilibrium in which the shadow banking sector expands to a size where its liquidation causes a fire-sale and exposes traditional banks to liquidity risk. Higher deposit rates in compensation for liquidity risk also weaken threats of early withdrawal and traditional banks pursue risky portfolios that may leave them in default. Policy interventions aimed at making traditional banks safer such as liquidity support, bank regulation and deposit insurance fuel further expansion of shadow banking but have a net positive impact on financial stability. Financial stability can also be achieved with a tax on shadow bank profits.
Book Synopsis How Does Temporary Deposit Insurance Affect Depositor Behavior? Evidence from the US Transaction Account Guarantee Program by : Veronika Molnar
Download or read book How Does Temporary Deposit Insurance Affect Depositor Behavior? Evidence from the US Transaction Account Guarantee Program written by Veronika Molnar and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research shows that significant withdrawal risk stems from the concentration of deposit holdings into large, mostly corporate transaction accounts which are uninsured and liquid. First, I test for the existence of depositor discipline on bank risk taking by large, corporate deposit holders. Second, I examine the effect of the unlimited insurance coverage on depositor discipline. The results of this paper suggest that in the absence of deposit insurance there is significant depositor discipline in large non-interest-bearing transaction accounts in both large and small banks in the U.S.. The findings also reveal that depositor discipline is eliminated during the unlimited insurance period in the sample. This paper shows that corporate depositors are both a source of market discipline and financial instability. Ad interim full insurance coverage on transaction accounts can prevent bank runs on healthy financial institutions in a banking crisis, but should never be made a permanent measure as it deteriorates discipline that is generally beneficial for all depositors.
Book Synopsis Does Deposit Insurance Diminish Market Discipline by : Andreas Grunwald
Download or read book Does Deposit Insurance Diminish Market Discipline written by Andreas Grunwald and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: As a consequence of the run on the British bank Northern Rock, the European Parliament's Economic and Monetary Affairs Committee agreed on raising the deposit insurance coverage from 20,000 to 50,000 Euro as of 30 June 2009 to restore confidence among depositors in the banking system. In this thesis the differences-in-differences methodology is employed to find out whether the implementation of this rise of coverage limit in Bulgaria diminished market discipline. The results suggest that holders of deposits in domestic currency reduced their efforts to discipline banks subsequently to the rise of the deposit insurance coverage in November 2008, while the holders of Euro-deposits increased their efforts. Holders of Euro-deposits impose more discipline on banks after November 2008 due to the failure of the Lehman Brothers and to bailouts of large banks in the United States of America and Europe. The former event made depositors more aware of bank risk taking and the latter event made them more conscious of potential too-big-to-fail guarantees. These events also impact holders of domestic currency deposits, but in a less pronounced manner. A reasonable explanation for behavioral discrepancies between holders of domestic currency and holders of Euro-deposits could be the lower level of education of domestic-currency holders.
Book Synopsis Prudential Supervision by : Frederic S. Mishkin
Download or read book Prudential Supervision written by Frederic S. Mishkin and published by University of Chicago Press. This book was released on 2009-02-15 with total page 379 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since banking systems play a crucial role in maintaining the overall health of the economy, the adverse effects of poorly supervised systems may be quite severe. Without some form of vigilant external oversight, banking systems could fall prey to excessive risk taking, moral hazard, and corruption. Prudential supervision provides that oversight, using government regulation and monitoring to ensure the soundness of the banking system and, by extension, the economy at large. The contributors to this thoughtful volume examine the current state of prudential supervision, focusing on fundamental issues and key pragmatic concerns. Why is prudential supervision so important? What kinds of excess must it guard against? What particular forms does it take? Which of these are the most effective deterrents against mismanagement and system overload in today's rapidly shifting financial climate? The contributors foresee a continued movement beyond simple regulatory rules in banking and toward a more active evaluation and supervision of a bank's risk management practices.
Book Synopsis Could Good Intentions Backfire? An Empirical Analysis of the Bank Deposit Insurance by : Weining Bao
Download or read book Could Good Intentions Backfire? An Empirical Analysis of the Bank Deposit Insurance written by Weining Bao and published by . This book was released on 2016 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent financial crisis led to the expansion of deposit-insurance coverage in many countries. We develop a structural model of the banking market, in which banks act as financial intermediaries between consumers who have funds and businesses that seek loans, and explore the implications of such policies for banks and depositors. Our results indicate the policy could erode market discipline and increase banks' moral hazard. As a result, banks extend their lending to riskier loans than they would have in the absence of the policy. We find this policy may even harm consumers. Moreover, market competition magnifies the lack of market discipline and induces additional moral hazard for excessive risk taking. Counterfactuals indicate banks reduce their deposit interest rates by at least 0.07% in a duopoly market (0.34% in an oligopoly market) and almost triple their risk caps under the new policy. The estimated losses of depositors' welfare are equivalent to at least a 0.28% drop in deposit interest rates.
Book Synopsis The Effect of Deposit Insurance on Market Discipline by : Alexei Karas
Download or read book The Effect of Deposit Insurance on Market Discipline written by Alexei Karas and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore how the introduction of explicit deposit insurance affects deposit flows into and out of banks of varying risk levels. Using evidence from a natural experiment in Russia, we employ a difference-in-difference estimator to isolate the change in the deposit flows of a newly insured group (households) relative to an uninsured “control” group (firms). This approach improves on earlier studies seeking to identify the effect of deposit insurance on market discipline. We find that the relative sensitivity of households to bank capitalization diminished markedly with the introduction of an insurance program covering their deposits. This was not true for firms, however. We then show the finding is not an artifact of the two groups responding differently to a minor banking crisis that arose at roughly the same time.
Book Synopsis Ratings, Rating Agencies and the Global Financial System by : Richard M. Levich
Download or read book Ratings, Rating Agencies and the Global Financial System written by Richard M. Levich and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: Ratings, Rating Agencies and the Global Financial System brings together the research of economists at New York University and the University of Maryland, along with those from the private sector, government bodies, and other universities. The first section of the volume focuses on the historical origins of the credit rating business and its present day industrial organization structure. The second section presents several empirical studies crafted largely around individual firm-level or bank-level data. These studies examine (a) the relationship between ratings and the default and recovery experience of corporate borrowers, (b) the comparability of credit ratings made by domestic and foreign rating agencies, and (c) the usefulness of financial market indicators for rating banks, among other topics. In the third section, the record of sovereign credit ratings in predicting financial crises and the reaction of financial markets to changes in credit ratings is examined. The final section of the volume emphasizes policy issues now facing regulators and credit rating agencies.
Author :Ms.Brenda Gonzalez-Hermosillo Publisher :International Monetary Fund ISBN 13 :1451845162 Total Pages :115 pages Book Rating :4.4/5 (518 download)
Book Synopsis Determinants of Ex-Ante Banking System Distress by : Ms.Brenda Gonzalez-Hermosillo
Download or read book Determinants of Ex-Ante Banking System Distress written by Ms.Brenda Gonzalez-Hermosillo and published by International Monetary Fund. This book was released on 1999-03-01 with total page 115 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically analyzes the contribution of microeconomic and macroeconomic factors in five recent episodes of banking system problems in the U.S. Southwest (1986–92), Northeast (1991–92), and California (1992–93); Mexico (1994–95); and Colombia (1982–87). The paper finds that a low capital equity and reserve coverage of problem loans ratio is a leading indicator of bank distress, signaling a high likelihood of near-term failure. Distress is shown to be a function of the same fundamental macro-micro sources of risk that determine bank failures. Focusing on distress has the advantage that the fragility of the banking system can be assessed before a crisis actually occurs.
Book Synopsis Three Branches of Theories of Financial Crises by : Itay Goldstein
Download or read book Three Branches of Theories of Financial Crises written by Itay Goldstein and published by . This book was released on 2015-12-15 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this monograph, we review three branches of theoretical literature on financial crises. The first deals with banking crises originating from coordination failures among bank creditors. The second deals with frictions in credit and interbank markets due to problems of moral hazard and adverse selection. The third deals with currency crises. We discuss the evolutions of these branches in the literature, and how they have been integrated recently to explain the turmoil in the world economy during the East Asian crises and in the last few years. We discuss the relation of the models to the empirical evidence and their ability to guide policies to avoid or mitigate future crises.
