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Market discipline under systemic risk - evidence from bank runs in emerging economies

Author:	Levy-Yeyati, Eduardo; Martinez Peria, Maria Soledad; Schmukler, Sergio L.;	Collection Title:	Policy, Research working paper ; no. WPS 3440
Country:	Uruguay; Argentina;	Date Stored:	2004/11/11
Document Date:	2004/11/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	Latin America & Caribbean
Report Number:	WPS3440	SubTopics:	Environmental Economics & Policies; Payment Systems & Infrastructure; Financial Crisis Management & Restructuring; Banks & Banking Reform; Labor Policies; Insurance & Risk Mitigation; Financial Intermediation
Volume No:	1 of 1

Summary: The authors show that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions can directly threaten the value of deposits by way of dual agency problems. Second, to the extent that banks are exposed to systemic risk, systemic shocks lead to a future deterioration of fundamentals not captured by their current values. Using data from the recent banking crises in Argentina and Uruguay, the authors show that market discipline is indeed quite robust once systemic risk is factored in. As systemic risk increases, the informational content of past fundamentals declines. These episodes also show how few systemic shocks can trigger a run irrespective of ex-ante fundamentals. Overall, the evidence suggests that in emerging economies, the notion of market discipline needs to account for systemic risk.


Official Documents Official, scanned versions of documents (may include signatures, etc.)
File Type		Description	File Size (mb)

	PDF 49 pages	Official version*	0.35
	Text	Text version**


Light-Weight Documents Lighter (less MB) documents which may or may not be the final, official version
File Type		Description	File Size (mb)

	PDF 49 pages	WPS3440	0.24

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