Dynamic Depositor Discipline in U.S. Banks

Author/Editor:

Kathleen McDill ; Andrea M. Maechler

Publication Date:

November 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2003/226

Subject:

Asset and liability management Bank deposits Banking Deposit insurance Deposit rates Distressed institutions Financial crises Financial institutions Financial services Special purpose vehicle

English

Publication Date:

November 1, 2003

ISBN/ISSN:

9781451875409/1018-5941

Stock No:

WPIEA2262003

Pages:

34

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