Market discipline by depositors: evidence from reduced form equations

Sangkyun Park

No 1994-023, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper examines the effects of the estimated probability of bank failure on the growth rates of large time deposits and interest rates on those deposits. While riskier banks paid higher interest rates, they attracted less large time deposits in the second half of the 1980s. These results indicate that risky banks faced unfavorable supply schedules of large time deposits and, hence, support the presence of market discipline by large time depositors. The empirical analysis also considers the effects of bank size, but fails to find evidence that depositors preferred large banks.

Keywords: Deposit; insurance (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (1)

Published in Quarterly Review of Economics & Finance, 1995 special issue

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DOI: 10.20955/wp.1994.023

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