Bank Regulation and Market Discipline around the World

Kaoru Hosono, Hiroko Iwaki and Kotaro Tsuru

Gakushuin Economic Papers, 2008, vol. 45, issue 1, 27-64

Abstract: This paper investigates the effectiveness of depositor discipline and its relationship with various bank regulations and supervisions using a panel of about 17,000 bank-year data during 1992-2002 around 60 countries. We first theoretically show that bank regulations affect deposit interest rate and its sensitivity to bank risk through the bank insolvency risk and the fraction of deposit protection, among others. Then we find empirical evidence that strict regulations on bank activities and powerful supervisory authorities tend to reduce deposit interest rate and its sensitivity to bank risk, suggesting that they tend to reduce market discipline by depositors.

Keywords: Market Discipline; Bank Regulation; Supervision; Deposit Insurance (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Bank Regulation and Market Discipline around the World (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:abc:gakuep:45-1-2

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