Depositor Behavior and Market Discipline in Colombia

34 Pages Posted: 4 May 2001

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2000

Abstract

This study examines how depositors choose among different banks and over time in Colombia, focusing on whether they discipline bank behavior. By controlling for a more comprehensive set of risk/return factors, the study improves upon conventional market discipline tests. Panel data estimations for 1985-99 show that depositors prefer banks with stronger fundamentals, and that banks tend to improve their fundamentals after being "punished" by depositors. Banks with stronger fundamentals benefit from lower interest costs and higher lending rates. Market (or "regulatory") discipline therefore appears to exist in Colombia, perhaps thanks to certain key design features of the deposit insurance scheme.

Keywords: Banking system, market discipline, deposit insurance, Colombia

JEL Classification: G21

Suggested Citation

Barajas, Adolfo and Steiner, Roberto, Depositor Behavior and Market Discipline in Colombia (December 2000). IMF Working Paper No. 00/214. Available at SSRN: https://ssrn.com/abstract=265648 or http://dx.doi.org/10.2139/ssrn.265648

Adolfo Barajas (Contact Author)

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)

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+571 341 2240 (Phone)
+571 281 5771 (Fax)

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