Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212776 
Year of Publication: 
2013
Series/Report no.: 
BOFIT Discussion Papers No. 21/2013
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in a worse financial condition than their subsidiaries. This situation created a unique opportunity to study new aspects of market discipline exercised by non-financial depositors. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were more strongly influenced by negative press rumors concerning parent companies than by fundamentals. The impact of rumors was especially perceptible when rumors turned out ex post to be founded. Additionally, we document that public aid announcements were primarily interpreted by depositors as confirmation of a parent company's financial distress. Our results, indicating that depositors react rationally to sources of information other than financial statements, have policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies.
Subjects: 
depositor behavior
market discipline
crisis
emerging markets
market rumors
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-26-4
Document Type: 
Working Paper

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