Market discipline across bank governance models: Empirical evidence from German depositors

•This study examines whether German depositor exercise market discipline.•A new measure of market discipline is introduced which provides a deeper insight into depositors’ behaviors.•This study uses a unique data set for German banks covering the period 2003–2012.•We empirically analyse the impact of bank governance structures on depositors' behaviors.•The study reveals the existence of market discipline across different governance structures.•We find a high degree of heterogeneity among German depositors.

German savers are renowned for preferring safe, long-term investments, thus providing patient capital, with bank deposits playing an important role. Based on a unique data set for the period 2003–2012, thus covering the financial crisis, our empirical findings do not confirm this hypothesis but reveal instead that market discipline is prevalent throughout the entire period of observation. Hence, the financial crisis did not provoke major behavioral changes. Moreover, depositors’ alertness was not silenced by a government guarantee of all deposits issued after the Lehman collapse. However, the strength and type of market discipline vary across governance structures, with savings banks’ and cooperative banks’ depositors significantly more active than depositors with commercial banks.