This paper investigates market discipline by depositors in the Indonesian banking sector. Does depositor discipline fulfill its role in Indonesia? Does deposit insurance affect depositor behavior thereby imposing discipline on banks? These questions are empirically examined using panel data on...

This paper demonstrates that subordinated debt (‘subdebt’ thereafter) regulation can be an effective mechanism for disciplining banks. Under our proposal, investors buy the subdebt of a bank only if they receive favourable information about the bank, and the bank is subject to a regulatory...

As a result of cross-sector and cross-border integration, European financial systems have become more interwoven, both nationally and internationally. More particularly, they have become more complex in terms of risk interdependencies. Financial stability is obviously affected by these financial...

In 2001, government guarantees for savings banks in Germany were removed following a law suit. We use this natural experiment to examine the effect of government guarantees on bank risk taking, using a large data set of matched bank/borrower information. The results suggest that banks whose...

The current financial crisis offers a unique opportunity to investigate the leading properties of market indicators in a stressed environment and their usefulness from a banking supervision perspective. One pool of relevant information that has been little explored in the empirical literature is...

This paper shows that the abolition of state guarantees to publicly owned banks in Germany resulted in an increase in funding costs at German savings banks. Rather than being the result of increased market discipline, the increase in funding costs is shown to be driven by spillover effects from...

Abstract. This paper focuses on the transmission of bank liquidity shocks in loan and deposit in emerging markets. First, we attempt to identify the factors that affect the credit strategy of foreign banks in emerging countries. Second, we test whether depositors do exert market discipline on...

Effective Market Discipline (MD) puzzles financial economists and regulators for decades, while the recent bail-in legislation for European banks extremely raises the need for even stronger MD. It may not be exaggeration to say that a new regime for the European banking market is born after the...