Market Discipline and Conflicts of Interest between Banks and Pension Funds

44 Pages Posted: 12 Dec 2011

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Mario Catalán

International Monetary Fund (IMF)

Date Written: December 2011

Abstract

We study the behavior of private pension funds as large depositors in a banking system. Using panel data analysis, we examine whether, and if so how, pension funds influence market discipline in Argentina in the period 1998-2001. We find evidence that pension funds exert market discipline and this discipline gets stronger as the share of pension fund deposits in a bank rises. However, conflicts of interest undermine the disciplining role of pension funds. Specifically, pension funds allocate deposits to banks with weak fundamentals that own pension fund management companies. We conclude that forbidding banks’ ownership of companies involved in pension fund management can enhance market discipline.

Keywords: Asset management, Banking crisis, Banks, Economic models, Investment, Pension funds

Suggested Citation

Barajas, Adolfo and Catalán, Mario, Market Discipline and Conflicts of Interest between Banks and Pension Funds (December 2011). IMF Working Papers, Vol. , pp. 1-43, 2011. Available at SSRN: https://ssrn.com/abstract=1971433

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

Mario Catalán (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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