How Do Russian Depositors Discipline Their Banks? Evidence of a Backward Bending Deposit Supply Function

Posted: 22 Dec 2009

See all articles by Alexei Karas

Alexei Karas

Utrecht University, University College Roosevelt; Utrecht University School of Economics; Centre for Russian International Socio-Political and Economic Studies (CERISE)

William Pyle

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

Date Written: January 2010

Abstract

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. Evidence for the standard form of price discipline, however, is weak. This combination of findings is unusual within the context of the literature on market discipline. But it is consistent with depositors interpreting the deposit rate as a complementary proxy of otherwise unobserved bank-level risk. Testing this hypothesis, we estimate the deposit supply function and show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction.

JEL Classification: G21, O16, P2

Suggested Citation

Karas, Alexei and Pyle, William and Schoors, Koen J. L., How Do Russian Depositors Discipline Their Banks? Evidence of a Backward Bending Deposit Supply Function (January 2010). Oxford Economic Papers, Vol. 62, Issue 1, pp. 36-61, 2010, Available at SSRN: https://ssrn.com/abstract=1525249 or http://dx.doi.org/gpp006

Alexei Karas

Utrecht University, University College Roosevelt ( email )

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William Pyle

Middlebury College - Department of Economics ( email )

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Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

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Ghent University - Department of General Economics ( email )

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