Depositor Discipline During Good and Bad Times: The Role of the Guarantor of Last Resort

Wharton Financial Institutions Center Working Paper No. 15-04

54 Pages Posted: 2 Mar 2015

See all articles by Krzysztof Jackowicz

Krzysztof Jackowicz

Kozminski University

Oskar Kowalewski

IESEG School of Management; LEM - CNRS 9221

Łukasz Kozłowski

Kozminski University

Date Written: February 28, 2015

Abstract

In this paper, we investigate, for the first time in the literature, whether the ability of the public sector or government (GLR), to effectively help banks or guarantee bank liabilities affects the sensitivity of interest costs and deposit dynamics to banks’ fundamentals. To test our hypothesis, we gathered a global bank sample covering the period from 1991 to 2012. We proxy for the GLR’s risk using sovereign ratings, credit default swap spreads, bond yields and changes in macroeconomic indicators. Additionally, we observe the period subsequent to systemic financial crises. Regardless of the method we apply to describe the GLR’s risk and the estimation procedure employed, we find that interest cost sensitivity to banks’ fundamentals, especially equity capital, is generally an increasing function of the GLR’s risk. Moreover, we provide evidence that the relationship between interest cost sensitivity to banks’ fundamentals and the GLR’s risk is non-linear and is even U-shaped in certain cases. Therefore, in economic terms, our results indicate that, paradoxically, moderate GLR risk levels may foster market monitoring by depositors.

Keywords: depositor discipline, banking, financial stability

JEL Classification: G21, G28

Suggested Citation

Jackowicz, Krzysztof and Kowalewski, Oskar and Kozłowski, Łukasz, Depositor Discipline During Good and Bad Times: The Role of the Guarantor of Last Resort (February 28, 2015). Wharton Financial Institutions Center Working Paper No. 15-04, Available at SSRN: https://ssrn.com/abstract=2572001 or http://dx.doi.org/10.2139/ssrn.2572001

Krzysztof Jackowicz (Contact Author)

Kozminski University ( email )

ul. JagielloDska 57/59
Warsaw, 03-303
Poland

Oskar Kowalewski

IESEG School of Management ( email )

1 Parvis de La Défense
Socle de la Grande Arche
Paris La Défense cedex, 92044
France

HOME PAGE: http://www.ieseg.fr/en/faculty-and-research/professor/?id=1740

LEM - CNRS 9221 ( email )

Lille
France

HOME PAGE: http://lem.cnrs.fr/

Łukasz Kozłowski

Kozminski University ( email )

ul. Jagiellońska 57/59
Warsaw, Mazowieckie 03-301
Poland

HOME PAGE: http://www.kozminski.edu.pl

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
68
Abstract Views
689
Rank
603,784
PlumX Metrics