 Do creditors punish weak banks? Evidence from Indian urban cooperative banks’ failureSakshi Narula and Manish K. Singh Pacific-Basin Finance Journal, 2024, vol. 88, issue C Abstract: This study empirically assesses two critical hypotheses related to market discipline: (i) Do depositors penalize underperforming banks by withdrawing their deposits? and (ii) Do well-informed peer banks reduce lending to weak banks? Based on the annual standalone balance sheet data of urban cooperative banks in India from 1990 to 2020, our findings suggest that: (i) the behaviour of savings and current depositors is not significantly affected by the bank risk; (ii) the risk-taking behaviour of the banks significantly influences term deposits; and (iii) other informed peer banks and financial institutions do respond to the riskiness of peer banks. Additionally, our research revealed a positive association between the size of assets and the deposit growth rate, indicating that depositors are responsive to the influence of the “too-big-to-fail” phenomenon. Moreover, depositors are sensitive to banks’ non-interest expenditures. Banks with higher non-interest expenditures pay a higher interest rate to retain depositors, thus suggesting the presence of weak market discipline. Keywords: Urban cooperative banks; Bank risk; Market discipline; CAMEL factors; Peer bank (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:eee:pacfin:v:88:y:2024:i:c:s0927538x24002695 DOI: 10.1016/j.pacfin.2024.102517 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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