Market Discipline Across Bank Governance Models: Empirical Evidence from German Depositors

43 Pages Posted: 21 Jun 2016

See all articles by Eva Arnold

Eva Arnold

University of Hamburg

Ingrid Größl

University of Hamburg

Philipp Koziol

European Central Bank (ECB)

Date Written: 2015

Abstract

German savers are renowned for preferring safe, long-term investments, thus providing patient capital, with bank deposits playing an important role. Using a comprehensive data set for the German banking sector, we examine whether German depositors are really that patient, abstaining from any type of market discipline, and how the financial crisis might have changed a well-established habit. Our empirical investigation reveals the existence of market discipline with a high degree of heterogeneity depending on banks' governance structures. The announcement of a state guarantee for bank deposits following the collapse of Lehman Brothers succeeded in calming depositors of all banking groups but did not remove market discipline entirely. Remaining disciplinary reactions by depositors of different banking groups increase in homogeneity but some differences remain.

Keywords: market discipline, bank depositor behavior, bank risk taking, deposit rates

JEL Classification: G10, G20, G30

Suggested Citation

Arnold, Eva and Größl, Ingrid and Koziol, Philipp, Market Discipline Across Bank Governance Models: Empirical Evidence from German Depositors (2015). Bundesbank Discussion Paper No. 13/2015, Available at SSRN: https://ssrn.com/abstract=2797037 or http://dx.doi.org/10.2139/ssrn.2797037

Eva Arnold (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Ingrid Größl

University of Hamburg

Allende-Platz 1
Hamburg, 20146
Germany

Philipp Koziol

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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