Bank management and market disciplineYoram Landskroner and Jacob Paroush Journal of Economics and Business, 2008, vol. 60, issue 5, pages 395-414 Abstract: In recent years, market discipline has attracted interest as a mechanism to augment or replace government regulation of the financial sector and, especially, depository institutions. The ability to substitute market discipline for bank regulation is of much interest and we use a theoretical model to examine it. In a stylized comprehensive model, we incorporate the characteristics of the regulatory structure and examine the effects of different parameters on the optimal decisions of the bank. These parameters include changes in risk, deposit-insurance coverage, and degree of market discipline. Interesting results include the following: (1) an increase in competition should result in less equity financing, higher deposit interest rates, and higher risk premiums (spreads); (2) exogenous shocks, such as an increase in oil prices, will result in more equity financing; (3) the sensitivity of the two types of deposits will react to a change in market discipline in opposite ways. Our theoretical results are consistent with empirical evidence in recent studies. Keywords: Asset-liability; management; (ALM); Bank; failure; Competition; Deposits; Deposit; insurance; Equity; financing; Market; discipline; Spreads (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:jebusi:v:60:y:2008:i:5:p:395-414 Access Statistics for this article Journal of Economics and Business is edited by G. P. Szegö More articles in Journal of Economics and Business from Elsevier |
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