Depositor Discipline During Good and Bad Times: The Role of the Guarantor of Last Resort

Krzysztof Jackowicz, Oskar Kowalewski () and Lukasz Kozlowski
Additional contact information
Krzysztof Jackowicz: Kozminski University
Lukasz Kozlowski: Kozminski University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: In this paper, we investigate, for the first time in the literature, whether the ability of the public sector or government, for convenience purposes called the guarantor of last resort (GLR), to effectively help banks or guarantee bank liabilities affects the sensitivity of interest costs and deposit dynamics to banks' fundamentals. To test our hypothesis, we gathered a global bank sample covering the period from 1991 to 2012. We proxy for the GLR's risk using sovereign ratings, credit default swap spreads, bond yields and changes in macroeconomic indicators. Additionally, we observe the period subsequent to systemic financial crises. Regardless of the method we apply to describe the GLR's risk and the estimation procedure employed, we find that interest cost sensitivity to banks' fundamentals, especially equity capital, is generally an increasing function of the GLR's risk. Moreover, we provide evidence that the relationship between interest cost sensitivity to banks' fundamentals and the GLR's risk is non-linear and is even U-shaped in certain cases. Therefore, in economic terms, our results indicate that, paradoxically, moderate GLR risk levels may foster market monitoring by depositors.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-ban and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/15/p1504.html
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/15/p1504.html [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/15/p1504.html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:15-04

Access Statistics for this paper

More papers in Working Papers from University of Pennsylvania, Wharton School, Weiss Center Contact information at EDIRC.
Bibliographic data for series maintained by ().