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.
| Original language | English |
|---|---|
| Pages (from-to) | 78-90 |
| Number of pages | 13 |
| Journal | Spanish Review of Financial Economics |
| Volume | 15 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 1 Jan 2017 |
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All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
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Market discipline in the Latin American banking system : Testing depositor discipline, borrower discipline, and the internal capital market hypothesis. / Tovar-García, Edgar Demetrio.
In: Spanish Review of Financial Economics, Vol. 15, No. 2, 01.01.2017, p. 78-90.Research output: Contribution to journal › Article
TY - JOUR
T1 - Market discipline in the Latin American banking system
T2 - Testing depositor discipline, borrower discipline, and the internal capital market hypothesis
AU - Tovar-García, Edgar Demetrio
PY - 2017/1/1
Y1 - 2017/1/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=85028473975&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85028473975&partnerID=8YFLogxK
U2 - 10.1016/j.srfe.2017.07.001
DO - 10.1016/j.srfe.2017.07.001
M3 - Article
AN - SCOPUS:85028473975
VL - 15
SP - 78
EP - 90
JO - Spanish Review of Financial Economics
JF - Spanish Review of Financial Economics
SN - 2173-1268
IS - 2
ER -