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
Date Written: November 15, 2009
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: Suggested Citation