Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia
University College Roosevelt/Utrecht University; Centre for Russian International Socio-Political and Economic Studies (CERISE)
Middlebury College - Department of Economics
Koen J. L. Schoors
Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics
William Davidson Institute Working Paper No. 829
Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.
Number of Pages in PDF File: 44
Keywords: banking, market discipline, deposit market, transition, Russia
JEL Classification: G21, O16, P2working papers series
Date posted: August 3, 2006
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