Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia

44 Pages Posted: 3 Aug 2006

See all articles by Alexei Karas

Alexei Karas

Utrecht University, University College Roosevelt; Utrecht University School of Economics; Centre for Russian International Socio-Political and Economic Studies (CERISE)

William Pyle

Middlebury College - Department of Economics

Koen J. L. Schoors

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

Date Written: June 2006

Abstract

Using a database from post-communist, pre-deposit-insurance Russia, we demonstrate the presence of quantity-based sanctioning of weaker banks by both firms and households, particularly after the financial crisis of 1998. Evidence for the standard form of price discipline, however, is notably weak. Estimating the deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases exhibit diminishing, and eventually negative, returns in terms of deposit attraction, a finding consistent with depositors interpreting the deposit rate itself as a signal of otherwise unobserved bank-level risk.

Keywords: banking, market discipline, deposit market, transition, Russia

JEL Classification: G21, O16, P2

Suggested Citation

Karas, Alexei and Pyle, William and Schoors, Koen J. L., Sophisticated Discipline in Nascent Deposit Markets: Evidence from Post-Communist Russia (June 2006). William Davidson Institute Working Paper No. 829, Available at SSRN: https://ssrn.com/abstract=920676 or http://dx.doi.org/10.2139/ssrn.920676

Alexei Karas

Utrecht University, University College Roosevelt ( email )

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William Pyle (Contact Author)

Middlebury College - Department of Economics ( email )

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Koen J. L. Schoors

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

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Ghent University - Department of General Economics ( email )

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

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