Does the market discipline banks? Evidence from Balkan states

Ayesha Afzal · Saba Fazal Firdousi

15 citations0/0 files storedThe Journal of Risk Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Banking stability, regulation, efficiency Corporate Finance and Governance Banking Sector Performance and Management

Abstract

Purpose This research is designed to investigate the presence of market discipline in the banking sector, across Balkan states in Europe. Specifically, the effects of CAMEL variables on the cost of funds and deposit-switching have been assessed. Design/methodology/approach The CAMEL method of bank evaluation has been applied as well as two measures for market discipline (costs of funds and deposit-switching behaviour). Data have been obtained for 10 Balkan states for the 2006–2019 period. For data analysis, ordinary least squares (OLS) and fixed effects models have been utilized. The generalized method of moments (GMM) method has been deployed as well as a dynamic panel model. Findings Evidence of market discipline has been found, in the form of a higher cost of funds in the context of capital adequacy (but not for other CAMEL variables). Evidence of market discipline in the form of deposit-switching, however, has not been found. In addition, it has been discovered that bank size and gross domestic product (GDP) growth lower the costs of funds for banks. Originality/value In the wake of the pandemic, banks need to prepare themselves for very difficult situations and relevant studies can provide help. Therefore, this research has contributed to the developing literature on this topic. In addition, the findings have important practical implications. Results show that banks should maintain adequate levels of capital if they want to control their costs of funds. Results also show that market discipline, in the form of higher costs of funds, can be imposed on banks to discourage excessive risk-taking. Findings highlight the value of appropriate policies and strong supervision of the financial industry. Findings also underline the importance of offering financial incentives to banks. For example, if banks know they will be able to avoid higher costs of funds by controlling their risk levels, they will avoid unrestrained risk-taking.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 15 citations exist upstream.

References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1988Agency Costs, Net Worth, And Business Fluctuations 1996The Financial Accelerator and the Flight to Quality 1983Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression 2013How does capital affect bank performance during financial crises?2011The Credit Crisis Around the Globe: Why Did Some Banks Perform Better?2001Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.