Dynamic Depositor Discipline in U.S. Banks
November 1, 2003
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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.
Subject: Asset and liability management, Bank deposits, Banking, Deposit insurance, Deposit rates, Distressed institutions, Financial crises, Financial institutions, Financial services, Special purpose vehicle
Keywords: bank, Bank deposits, bank fundamentals, Banking System, demand curve, Deposit Insurance, Deposit rates, depositor, depositor discipline, Distressed institutions, equity level, fundamentals change, interest rate, Market Discipline, risk profile, Special purpose vehicle, uninsured deposit, WP
Pages:
34
Volume:
2003
DOI:
Issue:
226
Series:
Working Paper No. 2003/226
Stock No:
WPIEA2262003
ISBN:
9781451875409
ISSN:
1018-5941
