We show that market discipline, defined as the extent to which firm specific risk characteristics are re ected in market prices, eroded during the recent financial crisis in 2008. We design a novel test of changes in market discipline based on the relation between firm specific risk...

This paper studies the mechanisms of market discipline in the Mexican deposit market. It tests the hypothesis that low-quality banks pay higher interest rates on deposits, receive fewer deposits, and shift their deposit agreements from long to short term. This hypothesis was assessed with...