Market Discipline by Thrift Depositors
Journal of Money, Credit and Banking, Vol. 30, No. 3, Part 1 (August 1998)
Posted: 6 Apr 1998
This paper tests for the presence of depositor discipline by examining the effects of depository institutions' risk on the pricing and growth of uninsured deposits. The study analyzes a large panel of thrifts that includes detailed information on each firm's deposit rate schedules, balance sheet composition, and financial condition. This information allows us to develop a time-consistent risk profile for thrifts. Our empirical findings support the presence of market discipline. Riskier banks are found to pay higher interest rates and attract smaller amounts of uninsured deposits. We also find that qualitative results are similar for fully insured deposits, although statistical significance is substantially lower.
JEL Classification: G21
Suggested Citation: Suggested Citation