Market Discipline in Banking: The Jordanian Experience

Abstract

This paper applies the issue of bank discipline to the Jordanian banking sector. Based on a total of 13 banks, the time period 2001-2012, and the Seemingly-Unrelated Regression (SUR), the results, on average, show that Jordanian depositors demand higher interest rate from banks with higher levels of risk. In addition, depositors seem to withdraw their depositors from banks with increasing levels of risk. These results are encouraging. Indeed, they indicate that depositors' disciplining behavior complements the efforts of the Central Bank of Jordan (CBJ).