Depositors’ Discipline in Uruguayan Banks

Virginia Goday (), Bertrand Gruss () and Jorge Ponce
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Virginia Goday: Banco Central del Uruguay
Bertrand Gruss: Banco Central del Uruguay

No 2005003, Documentos de trabajo from Banco Central del Uruguay

Abstract: This paper uses panel data of Uruguayan private owned banks to investigate the depositors’ reaction to changes in banks’ fundamentals in three sub-periods: pre-crisis (from January 2000 to December 2001); crisis (January 2002 to July 2002); and post-crisis (August 2002 to December 2004). We test for depositors’ discipline through the growth of deposits and through changes in the interest rates. We extend the analysis by testing if depositors discipline banks by shortening the maturity of time deposits. Taking into account that depositors’ discipline does not only involve depositors’ reaction but also the subsequent bank’s response, we also look into the significance and velocity of mean reversion in the deposits’ interest rates. We find strong evidence that supports the hypothesis that depositors discipline riskier banks by withdrawing their deposits and weaker evidence on the hypothesis that depositors require higher interest rates and reduce the maturity of their deposits as disciplining actions. Additionally, we find that banks react to depositors’ actions -depositors’ discipline is effective- specifically in the post-crisis period.

Keywords: Depositor Discipline; Uruguayan Banks; Panel Data (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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