Interbank Deposits and Market Discipline: Evidence from Central and Eastern Europe

Journal of Comparative Economics, Forthcoming

Posted: 30 Jul 2012

See all articles by Isabelle Distinguin

Isabelle Distinguin

Université de Limoges, LAPE

Tchudjane Kouassi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

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Date Written: July 30, 2012

Abstract

There is a considerable debate on the role played by market discipline in the banking industry. Using data for 207 banks across 10 Central and Eastern European countries, this paper empirically analyzes the disciplining role of interbank deposits. We find that market discipline has been effective in Central and Eastern Europe since the implementation of explicit deposit insurance. However, several factors affect the strength of this discipline. State-owned banks are not disciplined probably because they benefit from implicit insurance. Institutional and legal factors, and resolution strategies adopted by countries during banking crises also impact bank risk and the effectiveness of market discipline. Our results indicate that stronger regulatory discipline reduces risk but also weakens market discipline.

Keywords: bank risk, market discipline, interbank deposits, transition economics

JEL Classification: G21, G28

Suggested Citation

Distinguin, Isabelle and Kouassi, Tchudjane and Tarazi, Amine, Interbank Deposits and Market Discipline: Evidence from Central and Eastern Europe (July 30, 2012). Journal of Comparative Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2120175

Isabelle Distinguin

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Tchudjane Kouassi (Contact Author)

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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