 Exposure to interbank market and risk-taking by Mexican banksCuadernos de Economía - Spanish Journal of Economics and Finance, 2016, vol. 39, issue 111, 157-174 Abstract: Banks can avoid bank runs and panic using the interbank market as a type of coinsurance. Moreover, because of the possibility of losing financial assets, they theoretically have incentives to monitor their peers, borrowing in this market. This paper examines whether bank risks are explained by their exposure to the interbank market. The market discipline hypothesis suggests that bankers are well equipped to monitor their peers, and the interbank borrowing is par excellence an uninsured deposit. Consequently, banks with a larger exposure to the interbank market should present strong bank fundamentals. Using a sample of 37 Mexican banks, from December 2008 to September 2012, and dynamic panel models based on the SYS GMM estimator, I did not find evidence in favor of the market discipline hypothesis. These results are robust to different indicators of bank risk and exposure to interbank markets. This is a wake-up call for policymakers, who should restore market discipline in interbank operations, following the disclosure policy in Basel III. Keywords: Market discipline; Interbank market; Bank risk; Contagion; Mexico (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cud:journl:v:39:y:2016:i:111:p:157-174 Access Statistics for this article More articles in Cuadernos de Economía - Spanish Journal of Economics and Finance from Asociación Cuadernos de Economía |
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