IDEAS home Printed from https://ideas.repec.org/p/ecl/upafin/11-25.html
   My bibliography  Save this paper

Do Depositors Discipline Banks? An International Perspective

Author

Listed:
  • Berger, Allen N.

    (University of SC and Wharton Financial Institutions Center, University of PA)

  • Turk-Ariss, Rima

    (Lebanese American University)

Abstract

The recent financial crisis highlights the importance of both regulatory and market discipline. Government reactions to the crisis include expanding deposit insurance coverage and rescuing troubled institutions, including some that might not otherwise be considered too big to fail, which may have the unintended consequence of a reduction in depositor discipline that might otherwise penalize banks for risk-taking behavior. To examine the potential for this to occur, we test for the presence of depositor discipline effects in the period leading up to the financial crisis in both the US and the EU. We find significant depositor discipline in both the US and EU, but this varies between the US and the EU, and also varies with banking organization size and with listed versus unlisted status. We also find that depositors appear to react more consistently to equity ratios than measures of loan portfolio performance, the latter of which may sometimes considered too manipulable to be trusted. This is consistent also with the requirements of Basel III that increase the minimum amount of Tier 1 common equity.

Suggested Citation

  • Berger, Allen N. & Turk-Ariss, Rima, 2010. "Do Depositors Discipline Banks? An International Perspective," Working Papers 11-25, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:11-25
    as

    Download full text from publisher

    File URL: http://fic.wharton.upenn.edu/fic/papers/11/11-25.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierluigi Bologna, 2015. "Structural Funding and Bank Failures," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(1), pages 81-113, February.
    2. Krzysztof Jackowicz & Oskar Kowalewski & Łukasz Kozłowski, 2018. "Depositors Discipline through Interest Costs during Good and Bad Times: the Role of the Guarantor of Last Resort1," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(2), pages 179-205, October.
    3. Barajas, Adolfo & Catalán, Mario, 2015. "Market discipline and conflicts of interest between banks and pension funds," Journal of Financial Intermediation, Elsevier, vol. 24(3), pages 411-440.
    4. Pierluigi Bologna, 2011. "Is there a role for funding in explaining recent US bank failures?," Questioni di Economia e Finanza (Occasional Papers) 103, Bank of Italy, Economic Research and International Relations Area.
    5. Jonathan D. Rose, 2015. "Old-Fashioned Deposit Runs," Finance and Economics Discussion Series 2015-111, Board of Governors of the Federal Reserve System (U.S.).
    6. Lukasz Kozlowski, 2018. "The Halo Effect in Banking: Evidence from Local Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(5), pages 416-441, October.
    7. Mr. Adolfo Barajas & Mr. Mario Catalan, 2011. "Market Discipline and Conflicts of Interest Between Banks and Pension Funds," IMF Working Papers 2011/282, International Monetary Fund.

    More about this item

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:upafin:11-25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/wcupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.