Market Discipline and Conflicts of Interest Between Banks and Pension Funds

Author/Editor:

Adolfo Barajas ; Mario Catalan

Publication Date:

December 1, 2011

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:

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.

Series:

Working Paper No. 2011/282

Subject:

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

English

Publication Date:

December 1, 2011

ISBN/ISSN:

9781463926632/1018-5941

Stock No:

WPIEA2011282

Pages:

44

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