Market Price Accounting and Depositor Discipline in Japanese Regional Banks

FRB of San Francisco Working Paper No. 2004-27

37 Pages Posted: 18 Apr 2005

See all articles by Mark M. Spiegel

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Date Written: May 2004

Abstract

We examine the determinants of Japanese regional bank decisions concerning pricing unrealized losses or gains to market. We also examine the impact of these decisions on the intensity of depositor discipline, in the form of the sensitivity of deposit growth to bank financial conditions. To obtain consistent estimates of depositor discipline, we first model and estimate the bank pricing-to-market decision and then estimate the intensity of depositor discipline after conditioning for that decision. We find that banks were less likely to price to market the larger were their unrealized securities losses. We also find statistically significant evidence of depositor discipline among banks that elected to price their assets to market. Our results indicate that depositor discipline was more intense for the subset of banks that priced-to-market, suggesting that increased transparency may enhance depositor discipline.

Keywords: disclosure, Japanese banking, market discipline

JEL Classification: G18, G21

Suggested Citation

Spiegel, Mark M. and Yamori, Nobuyoshi, Market Price Accounting and Depositor Discipline in Japanese Regional Banks (May 2004). FRB of San Francisco Working Paper No. 2004-27, Available at SSRN: https://ssrn.com/abstract=700746 or http://dx.doi.org/10.2139/ssrn.700746

Mark M. Spiegel (Contact Author)

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

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