Market Discipline in Turkey Before and after the 2001 Financial Crisis

Review of Middle East Economics and Finance, Vol. 5, No. 1, 2009

34 Pages Posted: 21 Sep 2011  

Levent Bulut

Ipek University - Department of Economics; Ipek University

Osman Nal

Texas Southern University

Date Written: November 15, 2009

Abstract

This paper compares the effectiveness of market discipline mechanisms in the banking sector before and after the 2001 financial crisis in Turkey. It employs an empirical model that incorporates the contemporaneous feedback effects between deposits growth rate and the implicit interest rate. Using 3SLS procedure, the results show that market disciplinary forces in Turkey have been effective both before and after the 2001 financial crisis. The findings show that the effect of the implicit interest rate on deposits becomes more sensitive to bank risk fundamentals after the 2001 financial crisis. Depositors, on the other hand, do not change their behavior in the aftermath of the crisis which can be explained by an implicit “too-big-to-fail'' protection at work.

Keywords: market discipline, capital asset ratio, deposit safety nets, too-big-to-fail

JEL Classification: G21, G28, E53

Suggested Citation

Bulut, Levent and Nal, Osman, Market Discipline in Turkey Before and after the 2001 Financial Crisis (November 15, 2009). Review of Middle East Economics and Finance, Vol. 5, No. 1, 2009 . Available at SSRN: https://ssrn.com/abstract=1931706

Levent Bulut (Contact Author)

Ipek University - Department of Economics ( email )

Ipek University
Turan Gunes Bulvari
Ankara, 06550
Turkey

Ipek University ( email )

Turan Güneş Blv
Ankara, 06550
Turkey

Osman Nal

Texas Southern University ( email )

3100 Cleburne Street
Houston, TX 77004
United States
713-313-1375 (Phone)

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