Depositor Behavior and Market Discipline in Colombia

Author/Editor:

Adolfo Barajas ; Roberto Steiner

Publication Date:

December 1, 2000

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 study examines how depositors choose among different banks and over time in Colombia, focusing on whether they discipline bank behavior. By controlling for a more comprehensive set of risk/return factors, the study improves upon conventional market discipline tests. Panel data estimations for 1985-99 show that depositors prefer banks with stronger fundamentals, and that banks tend to improve their fundamentals after being “punished” by depositors. Banks with stronger fundamentals benefit from lower interest costs and higher lending rates. Market (or “regulatory”) discipline therefore appears to exist in Colombia, perhaps thanks to certain key design features of the deposit insurance scheme.

Series:

Working Paper No. 00/214

Subject:

English

Publication Date:

December 1, 2000

ISBN/ISSN:

9781451874983/1018-5941

Stock No:

WPIEA2142000

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

34

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