【公开学术报告】A Tale of Two Market Disciplines: How does Bank Financial Misconduct Affect Peer Banks in the Local Deposit Market

A Tale of Two Market Disciplines: How does Bank Financial Misconduct Affect Peer Banks in the Local Deposit Market

Guest Speaker:    Yang Qiu (CUHK)

Date & Time:       10:00-11:30 (Beijing Time), Thur. 30th, Nov. 2023

Zoom Meeting: 99994516798（Password: 640697）

Click the Link: https://zoom.us/j/99994516798

 ABSTRACT

This study reveals that the impact of bank financial misconduct on uninsured deposits of local peer banks that have not engaged in misconduct is contingent upon the economic conditions. In non-crisis periods, depositors respond to bank financial misconduct by reallocating deposits from misconduct bank branches to peer non-misconduct bank branches in the local market, leading to a decrease in the uninsured deposit spreads of the peer branches (local reallocation effect). In the crisis period, depositors withdraw from both misconduct bank branches and non-misconduct peer branches in the local deposit market, resulting in an increase in the uninsured deposit spreads of the peer non-misconduct branches (local contagion effect). Cross-sectional analyses show that depositors’ financial sophistication and government guarantee play a role in the above two misconduct-triggered deposit market disciplines. The reallocation effect is more concentrated among financially sophisticated depositors and is amplified (attenuated) when peer (misconduct) banks have a lower default risk, or when they are more likely to receive government guarantees. In contrast, the local contagion effect is mitigated by government guarantees and social capital.

Keywords: Deposit Market Discipline; Bank Financial Misconduct; Reallocation; Bank Run 

JEL Classification: G01; G21; G53; M41