Journal of Financial Services Research

, Volume 30, Issue 1, pp 93–109 | Cite as

The Depositor Behind the Discipline: A Micro-Level Case Study of Hamilton Bank

  • Andrew Mitsunori Davenport
  • Kathleen Marie McDill
Article

Abstract

Though uninsured depositors are recognized as a source of market discipline, the possible disciplinary effect of decisions made by fully insured depositors have gone largely unexamined. Using proprietary administrative deposit data at the account level, this paper analyzes depositor behavior at a recently failed institution. The results suggest that although uninsured deposits exited at a greater rate than insured deposits, the vast majority of deposits withdrawn were fully insured. Among types of deposit accounts, the rates of withdrawal for fully insured individual, joint, and trust accounts were relatively high. Uninsured business account owners were highly sensitive to the bank's deteriorating condition. In contrast, owners of uninsured individual retirement accounts effectively exerted no market discipline.

Keywords

Depositor discipline Account types Uninsured Insured 

JEL Classification

G20 G21 G28 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Avery RB, Belton TM, Goldberg MA (November 1998) Market discipline in regulating bank risk: New evidence from the capital markets. J Money, Credit Bank 20:597–610CrossRefGoogle Scholar
  2. Baer H, Brewer E (Q3 1986) Uninsured deposits as a source of market discipline: Some new evidence. Federal Reserve Bank of Chicago. Econ Perspect 23–31Google Scholar
  3. BankRate Incorporated. Bank rate monitor (various years)Google Scholar
  4. Basel Committee on Bank Supervision. The new basel capital accord. Consultative document, Bank for International Settlements, 2003Google Scholar
  5. Benston GJ, Eisenbeis RA, Horvitz PM, Kane EJ, Kaufman GG (1986) Perspectives on safe and sound banking, Cambridge, Massachusetts: MITGoogle Scholar
  6. Bliss RR (Q1 2001) Market discipline and subordinated debt: A review of some salient issues. Chicago: Federal Reserve Bank. Econ Perspect 24–45Google Scholar
  7. Bliss RR, Flannery MJ (2002) Market discipline in the governance of U.S. bank holding companies: Monitoring vs. influencing. European Finance Review 6:361–395CrossRefGoogle Scholar
  8. Calomiris CW (October 1999) Building an incentive-compatible safety net. J Bank Financ 23:1499–1519CrossRefGoogle Scholar
  9. Calomiris CW, Kahn CM (June 1991) The role of demandable debt in structuring optimal banking arrangements. Am Econ Rev 81:497–513Google Scholar
  10. Cargill TG (1989) CAMEL ratings and the CD market. J Financ Serv Res 3:347–358CrossRefGoogle Scholar
  11. Cook DO, Spellman LJ (August 1994) Repudiation risk and restitution costs: Toward understanding premiums on insured deposits. J Money, Credit Bank 26(3):439–459CrossRefGoogle Scholar
  12. Dahl D, Biswas B, O’Keefe J (March 1997) The supply and demand for brokered deposits during the period surrounding passage of FIRREA. Proceedings of the 26th annual meeting of the Western Decision Sciences InstituteGoogle Scholar
  13. Diamond DW, Dybvig PH (June 1983) Bank runs, deposit insurance, and liquidity. J Polit Econ 91:401–419CrossRefGoogle Scholar
  14. Evanoff DD, Wall LD (Q2 2000) Subordinated debt as bank capital: A proposal for regulatory reform. Federal Reserve Bank of Chicago. Econo Perspect 40–53Google Scholar
  15. Federal Deposit Insurance Corporation (FDIC 1983). Deposit insurance in a changing environment: A study of the current system of deposit insurance pursuant to Section 712 of the Garn-St. Germain Depository Institutions Act of 1982. Washington, DC: A report to congress on deposit insuranceGoogle Scholar
  16. Federal Deposit Insurance Corporation (FDIC 2004). Your insured deposit: FDIC’s guide to deposit insurance coverageGoogle Scholar
  17. Flannery MJ (March 1994) Debt maturity and the deadweight cost of leverage: Optimally financing banking firms. Am Econ Rev 84:320–331Google Scholar
  18. Flannery MJ (October–December 2001) The faces of ’Market Discipline’. J Financ Serv Res 20:107–119CrossRefGoogle Scholar
  19. Goldberg LG, Hudgins S (1996) Response of uninsured depositors to impending S&L failures: Evidence of depositor discipline. Q Rev Econ Financ 36(3):311–325CrossRefGoogle Scholar
  20. Goldberg LG, Hudgins S (2002) Depositor discipline and changing strategies for regulating thrift institutions. J Financ Econ 63(2):263–274CrossRefGoogle Scholar
  21. Gorton G, Santomero AM (February 1990) Market discipline and bank subordinated debt. J Money, Credit Bank 22(1):119–128CrossRefGoogle Scholar
  22. Hall JR, King TB, Meyer AP, Vaughan MD (November 10, 2003) Did FDICIA enhance market discipline? A look at evidence from the jumbo-CD market. Working paperGoogle Scholar
  23. Hannan T, Hanweck GA (May 1988) Bank insolvency risk and the market for large certificates of deposit. J Money, Credit Bank 20:203–212CrossRefGoogle Scholar
  24. James CM (1988) The use of loan sales and standby letters of credit by commercial banks. J Monet Econ 22:395–422CrossRefGoogle Scholar
  25. James CM (1990) Heterogeneous creditors and the market value of bank LDC loan portfolios. J Monet Econ 25:325–346CrossRefGoogle Scholar
  26. Jordan JS (March/April 2000) Depositor discipline at failing banks. Federal Reserve Bank of Boston. N Engl Econ Rev 15–28Google Scholar
  27. Keeley MC (1990) Deposit insurance, risk and market power in banking. Am Econ Rev 80:1183–1200Google Scholar
  28. Lang WW, Robertson DD (January–February 2002) Analysis of proposals for a minimum subordinated debt requirement. J Econ Bus 54:115–136CrossRefGoogle Scholar
  29. Llewellyn DT (2002) Comment: The role of market discipline in a prompt corrective action regime, In: George G. Kaufman (ed), Prompt Corrective Action in Banking: Ten Years Later. Vol. 14 of Research in financial services: Private and public policy. New York: Elsevier 321–334Google Scholar
  30. Maechler A, McDill K (2006) Dynamic depositor discipline in U.S. banks. J Banking Finance 30(7):1871–1898CrossRefGoogle Scholar
  31. McDill K, Maechler A (2003) Do uninsured depositors vote with their feet? In: George G. Kaufman ed., Market discipline in banking: Theory and evidence. Vol. 15 of Research in financial services: Private and public policy. New York: Elsevier 211–248Google Scholar
  32. Office of the Inspector General. Material Loss Review of Hamilton Bank, N.A. OIG-03-032. U.S. Department of the Treasury (December 17, 2002)Google Scholar
  33. Park S, Peristiani S (1998) Market discipline by thrift depositors. J Money, Credit Bank 30(3):347–364CrossRefGoogle Scholar

Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  • Andrew Mitsunori Davenport
    • 1
  • Kathleen Marie McDill
    • 1
  1. 1.Federal Deposit Insurance CorporationChicagoUSA

Personalised recommendations