Depositor Discipline in Russian Regions: Flight to Familiarity or Trust in Local Authorities?

42 Pages Posted: 9 Feb 2017

See all articles by Koen J. L. Schoors

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Andrey Zubanov

University of Wisconsin-Madison - Department of Economics

Maria Semenova

National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 19, 2017

Abstract

We analyze whether a depositor’s familiarity with a bank affects depositor behavior during a financial crisis. Familiarity is measured by the presence of regional or local cues in the bank’s name, while depositor behavior is considered in terms of depositor sensitivity to observable bank risk (market discipline exerted by depositors). Using the 2001–2010 bank-level and region-level data for Russia, we show the evidence that depositors use quantity-based discipline on all banks in the sample. The evidence of a price-based discipline mechanism, however, is virtually absent. We find that depositors of familiar banks were less sensitive to bank risk after a financial crisis than depositors at unfamiliar banks. To assure the results are driven by familiarity bias and not implicit support of regional governments to banks with regional cues in their names, we interact the variables with measures of trust in local governments and regional affinity. We find a “flight to familiarity” effect strongly present in regions with strong regional affinity, while the effect is rejected in regions with greater trust in regional and local governments. This suggests that the results are driven by familiarity rather than implicit protection from trusted regional or local governments.

Keywords: market discipline, personal deposit, region, Russia, flight to familiarity, implicit guarantee

JEL Classification: G21, G01, P2

Suggested Citation

Schoors, Koen J. L. and Zubanov, Andrey and Semenova, Maria, Depositor Discipline in Russian Regions: Flight to Familiarity or Trust in Local Authorities? (January 19, 2017). BOFIT Discussion Paper No. 1/2017. Available at SSRN: https://ssrn.com/abstract=2914042

Koen J. L. Schoors (Contact Author)

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

Andrey Zubanov

University of Wisconsin-Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

Maria Semenova

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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