BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Market discipline and the Russian interbank market
() and Maria Semenova
Abstract: The interbank market plays an important role in the
overall function of the financial system. The efficiency of the interbank
market, in turn, depends largely on its inherent disciplining mechanisms.
This paper investigates the discipline mechanisms of Russia’s interbank
market, testing the hypothesis that market discipline in Russia was strong
enough to constrain excessive risk-taking by participating banks before,
during, and after the 2008–2009 financial crisis. The existence of
quantity-based market discipline is investigated using Heckman’s sample
selection model and the efficiency of market discipline is studied with a
panel data model. Our approach detects market discipline only during the
financial crisis, not before or after. Even during the crisis, its
efficiency in curbing bank risk-taking was rather low.
Keywords: market discipline; interbank market; risk-taking; banks; Russia; (follow links to similar papers)
JEL-Codes: G01; G21; P20; (follow links to similar papers)
39 pages, November 29, 2013
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