Market Reaction to Risky Banks: Did Generous Deposit Guarantee Change It?

Önder, Zeynep; Ozyildirim, Suheyla

doi:10.1016/j.worlddev.2007.08.007

Cited by 28 publications

(14 citation statements)

References 37 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Large banks are perceived as systemically important banks that would most likely be bailed out by the government if they collapse (Imai, 2006;Onder and Ozyildirim, 2008). Therefore we expect a higher supply of funds for these too-big-to-fail banks, and a lower interest rate paid on deposits (Mondscean and Opiela, 1999;Opiela, 2004;Onder and Ozyildirim, 2008;Hadad et al, 2011).…”

Section: Variablesmentioning

confidence: 99%

See 1 more Smart Citation

Political connections, bank deposits, and formal deposit insurance

Nys

Tarazi

Trinugroho

2015

Journal of Financial Stability

View full text Add to dashboard Cite

This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector. Political connections, bank deposits, and formal deposit insurance:Evidence from an emerging economy Abstract This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector.JEL Classification: G28, D72

show abstract

Section: Variablesmentioning

confidence: 99%

“…Therefore we expect a higher supply of funds for these too-big-to-fail banks, and a lower interest rate paid on deposits (Mondscean and Opiela, 1999;Opiela, 2004;Onder and Ozyildirim, 2008;Hadad et al, 2011).…”

Section: Variablesmentioning

confidence: 99%

Political connections, bank deposits, and formal deposit insurance

Nys

Tarazi

Trinugroho

2015

Journal of Financial Stability

View full text Add to dashboard Cite

show abstract

“…A few segments of the literature point out that such stabilizing effect could hardly be lasted in the long run in case of full coverage of insured deposits, which is prone to moral hazard. Onder and Ozyildirim (2008) suggest that the coverage limit affects the effectiveness of the deposit insurance scheme. The coverage limit should be established in covering most small depositors, while the large depositors are encouraged to monitor the bank activities.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Therefore, higher deposit insurance coverage will intensify the moral hazard problem, which engenders banking crises in the long run (Kam, 2011). For instance, the full deposit insurance scheme in Turkey introduced in 1996, IJLMA 57,3 encouraged banks to behave riskier, which resulted in a banking crisis in 2001 (Onder and Ozyildirim, 2008).…”

Section: Deposit Insurancementioning

confidence: 99%

See 1 more Smart Citation

Banking crises and Hong Kong

Kan

Bagheri

2015

Int Jnl Law Management

View full text Add to dashboard Cite

Purpose – This paper aims to explain the importance of the international cooperation and coordination among supervisory authorities of different countries in event of banking crises. It also suggests that the harmonious relationship has to be attained in the adoption of ex ante financial regulatory measures and ex post compensation schemes. In other words, the paper highlights the linkage between ex ante preventive regulatory measures and ex post compensation schemes, on the one hand, and cooperation among national regulatory and supervisory authorities in globalized financial markets. Although the paper is relevant to most developed and emerging financial markets, it chooses Hong Kong as a context to examine this proposal. In the current literature, there are no similar approach linking these two paradigms and examining them in an integrated context. Design/methodology/approach – The paper adopts a conceptual framework after the 2008 global financial crisis and takes Hong Kong, an international financial centre in which numerous branches or subsidiaries of foreign financial institutions locate, as an example to examine how the coordination with foreign supervisory authorities are being conducted and to analyse whether the present regulatory framework in Hong Kong is effective and sufficient against banking crises. Through the review of the literature, the important link between ex ante regulatory measures and ex post compensation schemes is found to be significant in adopting proper solutions. Findings – Through analysing the Hong Kong financial regulators’ reports on the collapse of Lehman Brother, the paper finds out that even though there is some weakness in the cooperation and coordination between regulators after the 2008 financial crisis, Hong Kong is still in the progress of proposing bank special resolution regime. Although there has been some awareness on the issue of coordination between home and host states regulatory measures, there is still a lack of awareness of the connection between regulatory measures and compensation schemes. Research limitations/implications – Conflict of interests could hardly be prevented in the course of cooperation and coordination among home and host regulatory authorities, and the coordination of the important link between ex ante regulatory measures and ex post compensation scheme which involves legal and economic analyses is a challenging task. Practical implications – The paper’s findings show that there are practical implications for the recent rapid development of special resolution regime for global systematically important financial institutions against future banking crises and for managing the balance between the adoption of financial supervisory laws and special resolution measures. Originality/value – This paper suggests that the harmonious coordination between ex ante regulatory measures and ex post compensation schemes has to be achieved through international context to avoid the absurd situations. This conceptual integrated framework p...

show abstract

Bank deposits and Google searches in a crisis economy: Bayesian non‐linear evidence for Greece (2009–2015)

2020

View full text Add to dashboard Cite

Due to a variety of reasons, the Greek economy faced a severe crisis being a member of EMU. Nonetheless, the country's banking system experienced a dramatic outflow of deposits, in the period 2009–2015. The present paper attempts to shed light on the possibility of forecasting bank deposits, based on the keyword “Grexit” of Google searches. In this context, apart from standard forecasting models like AR (p) and ARDL (p, q) we estimate a novel Neural Network ARDL (p, q, G) model and its respective Bayesian modification. We show that extending standard autoregressive models with the information provided by Internet Searches leads to significant improvement in the forecasting accuracy of the Bank Deposits, compared with other standard models. Furthermore, the forecasting performance of the models, which are extended with Google searches, is shown to be better than models containing only the well‐known indicators. Our findings are robust and econometrically sound.

show abstract

Market Reaction to Risky Banks: Did Generous Deposit Guarantee Change It?

Cited by 28 publications

References 37 publications

Political connections, bank deposits, and formal deposit insurance

Political connections, bank deposits, and formal deposit insurance

Banking crises and Hong Kong

Bank deposits and Google searches in a crisis economy: Bayesian non‐linear evidence for Greece (2009–2015)

Contact Info

Product

Resources

About