Dynamic Depositor Discipline in U.S. Banks

FDIC Working Paper No. 03-7

33 Pages Posted: 3 Mar 2006

See all articles by Kathleen McDill

Kathleen McDill

Federal Deposit Insurance Corporation (FDIC)

Andrea Maechler

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2003

Abstract

This paper investigates the presence of depositor discipline in the U.S. banking sector. We test whether depositors penalize (discipline) banks for poor performance by withdrawing their uninsured deposits. While focusing on the movements in uninsured deposits, we also account for the possibility that banks may be forced to pay a risk premium in the form of higher interest rates to induce depositors not to withdraw their uninsured deposits. Our results support the existence of depositor discipline: a weak bank may not necessarily be able to stop a deposit drain by raising its uninsured deposit interest rates.

Suggested Citation

McDill, Kathleen and Maechler, Andrea, Dynamic Depositor Discipline in U.S. Banks (November 2003). FDIC Working Paper No. 03-7, Available at SSRN: https://ssrn.com/abstract=886721 or http://dx.doi.org/10.2139/ssrn.886721

Kathleen McDill (Contact Author)

Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States
202-898-3705 (Phone)

Andrea Maechler

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States
831-495-5201 (Phone)
831-495-5900 (Fax)

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