Transition to Market-Based Discipline of Banks: A Comparative Analysis of Russian Federation and Turkey

31 Pages Posted: 12 Feb 2008 Last revised: 18 Dec 2008

See all articles by Selcuk Caner

Selcuk Caner

Bilkent University - Faculty of Business Administration

Suheyla Ozyildirim

Bilkent University - Faculty of Business Administration

Ayse Ece Ungan

Bilkent University - Faculty of Business Administration

Abstract

We estimate the conditions under which depositor discipline is effective after a major bank crisis. In particular, we study the response of depositors in the Russian Federation and Turkey to risk-taking behavior of banks. In the Russian Federation depositors increased their deposits in well-capitalized and liquid banks in the aftermath of the crisis in 1998. Furthermore, more efficient banks were able to increase depositors' confidence. These results support existence of growing market discipline in the Russian banking industry. Similar discipline is observed in the Turkish banking industry. However, institutional factors and the structure of banking industry significantly affect the discipline exercised by depositors. Particularly, costly bailouts by bank supervisors in Turkey reduce response of depositors to bank riskiness thus rendering market discipline ineffective.

Keywords: Market discipline, Bank risk, Crisis; Efficiency, Russian Federation, Turkey

JEL Classification: G20, G21

Suggested Citation

Caner, Selcuk and Ozyildirim, Suheyla and Ungan, Ayse Ece, Transition to Market-Based Discipline of Banks: A Comparative Analysis of Russian Federation and Turkey. Available at SSRN: https://ssrn.com/abstract=1091162 or http://dx.doi.org/10.2139/ssrn.1091162

Selcuk Caner

Bilkent University - Faculty of Business Administration ( email )

06533 Bilkent, Ankara
Turkey
0 312 290 18 60 (Phone)
0 312 266 49 58 (Fax)

Suheyla Ozyildirim

Bilkent University - Faculty of Business Administration ( email )

06800 Bilkent, Ankara
Turkey

Ayse Ece Ungan (Contact Author)

Bilkent University - Faculty of Business Administration ( email )

06533 Bilkent, Ankara
Turkey
0 312 442 21 40 (Phone)
0 312 442 41 61 (Fax)

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