Depositor Behavior and Market Discipline in Colombia

Roberto Steiner and Adolfo Barajas

No 2000/214, IMF Working Papers from International Monetary Fund

Abstract: This study examines how depositors choose among different banks and over time in Colombia, focusing on whether they discipline bank behavior. By controlling for a more comprehensive set of risk/return factors, the study improves upon conventional market discipline tests. Panel data estimations for 1985-99 show that depositors prefer banks with stronger fundamentals, and that banks tend to improve their fundamentals after being “punished” by depositors. Banks with stronger fundamentals benefit from lower interest costs and higher lending rates. Market (or “regulatory”) discipline therefore appears to exist in Colombia, perhaps thanks to certain key design features of the deposit insurance scheme.

Keywords: WP; market discipline; depositor behavior; bank fundamentals; bank management; deposit growth; banking system; deposit insurance; Colombia; extent bank fundamentals; bank behavior; bank performance; Deposit rates; Moral hazard; Nonperforming loans; Bank deposits (search for similar items in EconPapers)
Pages: 34
Date: 2000-12-01
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Citations: View citations in EconPapers (43)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2000/214

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