Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies

The authors show that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fun...

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Main Authors:	Levy-Yeyati, Eduardo, Martinez Peria, Maria Soledad, Schmukler, Sergio L.
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	ACCOUNTING ADVERSE CONSEQUENCES ASSET RATIO BALANCE SHEET BANK ACCOUNTS BANK ASSETS BANK CAPITAL BANK DEPOSITS BANK EXPOSURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK PERFORMANCE BANK RESERVES BANK RISK BANK RUN BANK RUNS BANK SOLVENCY BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKS BONDS BORROWING BORROWING COSTS CAPITAL FLIGHT CAPITAL TO ASSET RATIO CAPITALIZATION CAPS CENTRAL BANK CENTRAL BANKS COMPETITIVENESS CONTAGION CREDIT RISK DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVALUATION ECONOMIC CONDITIONS EMERGING ECONOMIES EMERGING MARKETS FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING SOURCES FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEPOSITS FOREIGN CURRENCY LOANS GOVERNMENT INTERVENTION HUMAN CAPITAL IMPERFECT INFORMATION INFORMATION DISCLOSURE INNOVATIONS INTEREST RATE INTEREST RATES INTEREST RATES ON DEPOSITS INTERNATIONAL RESERVES LIBOR LIQUIDATION LIQUIDITY LIQUIDITY OF BANKS MACROECONOMIC CONDITIONS MACROECONOMIC EVENTS MARKET DISCIPLINE MARKET PARTICIPANTS MATURITIES MATURITY MINIMUM CAPITAL STANDARDS PENSION FUNDS PRIVATE BANKS PROFITABILITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PUBLIC DEBT RATING AGENCIES RECESSION RETURN ON ASSETS RISK FACTORS RISK TAKING SAFETY SAVINGS SHAREHOLDERS SOVEREIGN RISK STABILIZATION SUBORDINATED DEBT SUBSTITUTION SYSTEMIC RISK TIME DEPOSITS TRANSPARENCY VOLATILITY
Online Access:	http://documents.worldbank.org/curated/en/2004/11/5318699/market-discipline-under-systemic-risk-evidence-bank-runs-emerging-economies http://hdl.handle.net/10986/14222

id	okr-10986-14222
recordtype	oai_dc
spelling	okr-10986-142222021-04-23T14:03:21Z Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies Levy-Yeyati, Eduardo Martinez Peria, Maria Soledad Schmukler, Sergio L. ACCOUNTING ADVERSE CONSEQUENCES ASSET RATIO BALANCE SHEET BANK ACCOUNTS BANK ASSETS BANK CAPITAL BANK DEPOSITS BANK EXPOSURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK PERFORMANCE BANK RESERVES BANK RISK BANK RUN BANK RUNS BANK SOLVENCY BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKS BONDS BORROWING BORROWING COSTS CAPITAL FLIGHT CAPITAL TO ASSET RATIO CAPITALIZATION CAPS CENTRAL BANK CENTRAL BANKS COMPETITIVENESS CONTAGION CREDIT RISK DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVALUATION ECONOMIC CONDITIONS EMERGING ECONOMIES EMERGING MARKETS FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING SOURCES FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEPOSITS FOREIGN CURRENCY LOANS GOVERNMENT INTERVENTION HUMAN CAPITAL IMPERFECT INFORMATION INFORMATION DISCLOSURE INNOVATIONS INTEREST RATE INTEREST RATES INTEREST RATES ON DEPOSITS INTERNATIONAL RESERVES LIBOR LIQUIDATION LIQUIDITY LIQUIDITY OF BANKS MACROECONOMIC CONDITIONS MACROECONOMIC EVENTS MARKET DISCIPLINE MARKET PARTICIPANTS MATURITIES MATURITY MINIMUM CAPITAL STANDARDS PENSION FUNDS PRIVATE BANKS PROFITABILITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PUBLIC DEBT RATING AGENCIES RECESSION RETURN ON ASSETS RISK FACTORS RISK TAKING SAFETY SAVINGS SHAREHOLDERS SOVEREIGN RISK STABILIZATION SUBORDINATED DEBT SUBSTITUTION SYSTEMIC RISK TIME DEPOSITS TRANSPARENCY VOLATILITY The authors show that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions can directly threaten the value of deposits by way of dual agency problems. Second, to the extent that banks are exposed to systemic risk, systemic shocks lead to a future deterioration of fundamentals not captured by their current values. Using data from the recent banking crises in Argentina and Uruguay, the authors show that market discipline is indeed quite robust once systemic risk is factored in. As systemic risk increases, the informational content of past fundamentals declines. These episodes also show how few systemic shocks can trigger a run irrespective of ex-ante fundamentals. Overall, the evidence suggests that in emerging economies, the notion of market discipline needs to account for systemic risk. 2013-06-26T19:28:21Z 2013-06-26T19:28:21Z 2004-11 http://documents.worldbank.org/curated/en/2004/11/5318699/market-discipline-under-systemic-risk-evidence-bank-runs-emerging-economies http://hdl.handle.net/10986/14222 English en_US Policy Research Working Paper;No.3440 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCOUNTING ADVERSE CONSEQUENCES ASSET RATIO BALANCE SHEET BANK ACCOUNTS BANK ASSETS BANK CAPITAL BANK DEPOSITS BANK EXPOSURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK PERFORMANCE BANK RESERVES BANK RISK BANK RUN BANK RUNS BANK SOLVENCY BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKS BONDS BORROWING BORROWING COSTS CAPITAL FLIGHT CAPITAL TO ASSET RATIO CAPITALIZATION CAPS CENTRAL BANK CENTRAL BANKS COMPETITIVENESS CONTAGION CREDIT RISK DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVALUATION ECONOMIC CONDITIONS EMERGING ECONOMIES EMERGING MARKETS FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING SOURCES FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEPOSITS FOREIGN CURRENCY LOANS GOVERNMENT INTERVENTION HUMAN CAPITAL IMPERFECT INFORMATION INFORMATION DISCLOSURE INNOVATIONS INTEREST RATE INTEREST RATES INTEREST RATES ON DEPOSITS INTERNATIONAL RESERVES LIBOR LIQUIDATION LIQUIDITY LIQUIDITY OF BANKS MACROECONOMIC CONDITIONS MACROECONOMIC EVENTS MARKET DISCIPLINE MARKET PARTICIPANTS MATURITIES MATURITY MINIMUM CAPITAL STANDARDS PENSION FUNDS PRIVATE BANKS PROFITABILITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PUBLIC DEBT RATING AGENCIES RECESSION RETURN ON ASSETS RISK FACTORS RISK TAKING SAFETY SAVINGS SHAREHOLDERS SOVEREIGN RISK STABILIZATION SUBORDINATED DEBT SUBSTITUTION SYSTEMIC RISK TIME DEPOSITS TRANSPARENCY VOLATILITY
spellingShingle	ACCOUNTING ADVERSE CONSEQUENCES ASSET RATIO BALANCE SHEET BANK ACCOUNTS BANK ASSETS BANK CAPITAL BANK DEPOSITS BANK EXPOSURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK PERFORMANCE BANK RESERVES BANK RISK BANK RUN BANK RUNS BANK SOLVENCY BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKING SYSTEMS BANKS BONDS BORROWING BORROWING COSTS CAPITAL FLIGHT CAPITAL TO ASSET RATIO CAPITALIZATION CAPS CENTRAL BANK CENTRAL BANKS COMPETITIVENESS CONTAGION CREDIT RISK DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVALUATION ECONOMIC CONDITIONS EMERGING ECONOMIES EMERGING MARKETS FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING SOURCES FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEPOSITS FOREIGN CURRENCY LOANS GOVERNMENT INTERVENTION HUMAN CAPITAL IMPERFECT INFORMATION INFORMATION DISCLOSURE INNOVATIONS INTEREST RATE INTEREST RATES INTEREST RATES ON DEPOSITS INTERNATIONAL RESERVES LIBOR LIQUIDATION LIQUIDITY LIQUIDITY OF BANKS MACROECONOMIC CONDITIONS MACROECONOMIC EVENTS MARKET DISCIPLINE MARKET PARTICIPANTS MATURITIES MATURITY MINIMUM CAPITAL STANDARDS PENSION FUNDS PRIVATE BANKS PROFITABILITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PUBLIC DEBT RATING AGENCIES RECESSION RETURN ON ASSETS RISK FACTORS RISK TAKING SAFETY SAVINGS SHAREHOLDERS SOVEREIGN RISK STABILIZATION SUBORDINATED DEBT SUBSTITUTION SYSTEMIC RISK TIME DEPOSITS TRANSPARENCY VOLATILITY Levy-Yeyati, Eduardo Martinez Peria, Maria Soledad Schmukler, Sergio L. Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
geographic_facet	Latin America & Caribbean
relation	Policy Research Working Paper;No.3440
description	The authors show that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions can directly threaten the value of deposits by way of dual agency problems. Second, to the extent that banks are exposed to systemic risk, systemic shocks lead to a future deterioration of fundamentals not captured by their current values. Using data from the recent banking crises in Argentina and Uruguay, the authors show that market discipline is indeed quite robust once systemic risk is factored in. As systemic risk increases, the informational content of past fundamentals declines. These episodes also show how few systemic shocks can trigger a run irrespective of ex-ante fundamentals. Overall, the evidence suggests that in emerging economies, the notion of market discipline needs to account for systemic risk.
format	Publications & Research :: Policy Research Working Paper
author	Levy-Yeyati, Eduardo Martinez Peria, Maria Soledad Schmukler, Sergio L.
author_facet	Levy-Yeyati, Eduardo Martinez Peria, Maria Soledad Schmukler, Sergio L.
author_sort	Levy-Yeyati, Eduardo
title	Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
title_short	Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
title_full	Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
title_fullStr	Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
title_full_unstemmed	Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies
title_sort	market discipline under systemic risk: evidence from bank runs in emerging economies
publisher	World Bank, Washington, D.C.
publishDate	2013
url	http://documents.worldbank.org/curated/en/2004/11/5318699/market-discipline-under-systemic-risk-evidence-bank-runs-emerging-economies http://hdl.handle.net/10986/14222
_version_	1764430771981910016

Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies

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