Market Discipline during Crisis: Evidence from Bank Depositors in Transition Countries

Iftekhar Hasan, Krzysztof Jackowicz, Oskar Kowalewski () and Lukasz Kozlowski
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Krzysztof Jackowicz: Kozminski University
Lukasz Kozlowski: BGZ SA, Warsaw

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in worse financial conditions than their subsidiaries. This situation created a unique opportunity to study new aspects of depositor discipline. In this article, we investigate whether depositors flexibly accommodated to the changing sources of risk. We also analyse the informational foundations of depositors' decisions. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were much more strongly influenced by press rumours concerning parent companies than by fundamentals, and that the impact of rumours on deposit growth rates was highly economically significant. Additionally, we document that public aid announcements were interpreted by depositors primarily as a confirmation of a parent company's financial distress. Our results have important policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2012-07
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Market discipline during crisis: Evidence from bank depositors in transition countries (2013)
Working Paper: Market discipline during crisis: Evidence from bank depositors in transition countries (2013)
Working Paper: Market Discipline during Crisis: Evidence from Bank Depositors in Transition Countries (2012)
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