Depositor Behavior and Market Discipline in Colombia
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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. 2000/214
Subject:
Bank deposits Banking Deposit insurance Deposit rates Financial crises Financial institutions Financial sector policy and analysis Financial services Moral hazard Nonperforming loans
English
Publication Date:
December 1, 2000
ISBN/ISSN:
9781451874983/1018-5941
Stock No:
WPIEA2142000
Pages:
34
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