Article ID Journal Published Year Pages File Type
7411021 The Spanish Review of Financial Economics 2017 13 Pages PDF
Abstract
This paper tests the existence of market discipline in the Latin American banking system using a variety of methods. It re-examines traditional tests on depositor discipline, controlling banks' internal capital demand. In addition, it explores whether borrowers discipline bank risk-taking. This new hypothesis points out that low-quality banks issue fewer loans and charge lower interests rates. Contrary to the general view, our findings suggest weak presence of market discipline. These results are robust to different indicators of the key explanatory variables and econometric methods. For policymakers, this implies a necessity to restore market discipline following the Basel Accord.
Related Topics
Social Sciences and Humanities Business, Management and Accounting Accounting
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