Market Discipline at Thai Banks before the Asian Crisis

Komain Jiranyakul and Timothy Opiela

MPRA Paper from University Library of Munich, Germany

Abstract: This paper tests the effect of systemic risk on deposit market discipline by interacting proxies for systemic risk with bank-specific default-risk variables. Discipline is measured by estimating a supply of deposit funds function at Thai banks from 1992 to 1997. The results show that supply decreases as bank-specific risk increases. Also, the sensitivity of funds to changes in bank-specific risk increases as systemic risk rises. Additionally, depositors decrease their sensitivity to deposit rates, decreasing the ability of banks to offset deposit drains by raising rates. Although banking system risk increases, discipline decreases the share of deposits at the riskiest banks.

Keywords: Market discipline; market monitoring; systemic risk; banking and currency crises (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-ban, nep-mac, nep-rmg and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:54492

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