Market Discipline and Conflicts of Interest Between Banks and Pension Funds

December 1, 2011

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Adolfo Barajas, and Mario Catalan. Market Discipline and Conflicts of Interest Between Banks and Pension Funds, (USA: International Monetary Fund, 2011) accessed September 24, 2024

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

We study the behavior of private pension funds as large depositors in a banking system. Using panel data analysis, we examine whether, and if so how, pension funds influence market discipline in Argentina in the period 1998-2001. We find evidence that pension funds exert market discipline and this discipline gets stronger as the share of pension fund deposits in a bank rises. However, conflicts of interest undermine the disciplining role of pension funds. Specifically, pension funds allocate deposits to banks with weak fundamentals that own pension fund management companies. We conclude that forbidding banks' ownership of companies involved in pension fund management can enhance market discipline.

Subject: Bank deposits, Banking, Banking crises, Commercial banks, Deposit rates, Expenditure, Financial crises, Financial institutions, Financial services, Pension spending

Keywords: Bank deposit, Bank deposits, Bank fundamental, Banking crises, Banks, CAMEL-type bank-specific, Capitalization ratio, Central America, Central bank, Commercial banks, Conflicts of interest, Deposit growth, Deposit rates, Eastern Europe, Global, Institutional investors, Market discipline, Pension fund, Pension fund deposit, Pension funds, Pension spending, Unconnected bank, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/282
Stock No:

WPIEA2011282
ISBN:

9781463926632
ISSN:

1018-5941

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