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This study examines how depositors choose among different banks and over time in Colombia, focusing on whether they discipline bank behavior. By controlling for a more comprehensive set of risk/return factors, the study improves upon conventional market discipline tests. Panel data estimations for 1985-99 show that depositors prefer banks with stronger fundamentals, and that banks tend to improve their fundamentals after being “punished” by depositors. Banks with stronger fundamentals benefit from lower interest costs and higher lending rates. Market (or “regulatory”) discipline therefore appears to exist in Colombia, perhaps thanks to certain key design features of the deposit insurance scheme.

Banks and Banking --- Finance: General --- Financial Risk Management --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Interest Rates: Determination, Term Structure, and Effects --- General Financial Markets: Government Policy and Regulation --- Banking --- Finance --- Economic & financial crises & disasters --- Deposit insurance --- Deposit rates --- Moral hazard --- Nonperforming loans --- Financial crises --- Financial services --- Financial sector policy and analysis --- Financial institutions --- Bank deposits --- Banks and banking --- Crisis management --- Interest rates --- Financial risk management --- Loans --- Colombia

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The view that the IMF’s financial support gives rise to moral hazard has become increasingly prominent in policy discussions, particularly following the 1995 Mexican crisis. This paper seeks to clarify a number of conceptual issues and bring some basic empirical evidence to bear on this hypothesis. While some element of moral hazard is a logical consequence of the IMF’s financial support, such moral hazard is difficult to detect in market reactions to various IMF policy announcements and there is no evidence that such moral hazard has recently been on the rise.

Banks and Banking --- Finance: General --- Financial Risk Management --- Industries: Financial Services --- General Financial Markets: Government Policy and Regulation --- Financial Crises --- Interest Rates: Determination, Term Structure, and Effects --- General Financial Markets: General (includes Measurement and Data) --- Financial Institutions and Services: General --- Finance --- Economic & financial crises & disasters --- Moral hazard --- Financial crises --- Yield curve --- Emerging and frontier financial markets --- Systemically important financial institutions --- Financial sector policy and analysis --- Financial services --- Financial markets --- Financial institutions --- Financial risk management --- Financial services industry --- Interest rates --- Mexico

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This paper underscores the importance of the assessment of incentives of the main agents in a financial system as a key element in the analysis of financial system vulnerability and the surveillance over the financial system. We outline a diagnostic approach for the assessment of incentives. This approach highlights the need for additional research on the relationship between institutional structures and financial vulnerabilities.

Banks and Banking --- Finance: General --- Financial Risk Management --- Taxation --- Public Finance --- Environmental Economics --- International Financial Markets --- Corporate Finance and Governance: Government Policy and Regulation --- Taxation, Subsidies, and Revenue: General --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Environmental Economics: General --- Public finance & taxation --- Finance --- Banking --- Economic & financial crises & disasters --- Environmental economics --- Tax incentives --- Moral hazard --- Financial sector risk --- Deposit insurance --- Financial sector policy and analysis --- Legal support in revenue administration --- Revenue administration --- Environment --- Financial risk management --- Banks and banking --- Crisis management --- Financial instruments --- Revenue --- Environmental sciences --- Japan

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Increasing emphasis has been placed on the need for an effective lender of last resort for sovereign states and on procedures for sovereign debt restructuring to help cope with global financial crises. Where private creditors use short-term debt to check sovereign debtor’s moral hazard, there is the risk of self-fulfilling crises. In this context, we conclude that the proposal of the Meltzer Commission—for unconditional financial support, but only to states that pre-qualify—could be the source of increased instability. After discussing analogies with private sector arrangements, we compare the operations of the existing Paris Club with proposed Chapter 11 style procedures.

Finance: General --- Financial Risk Management --- Taxation --- Foreign Exchange --- Current Account Adjustment --- Short-term Capital Movements --- Financial Institutions and Services: General --- Bankruptcy --- Liquidation --- Financial Crises --- Taxation, Subsidies, and Revenue: General --- Portfolio Choice --- Investment Decisions --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Debt --- Debt Management --- Sovereign Debt --- Economic & financial crises & disasters --- Finance --- Public finance & taxation --- Financial crises --- Tax incentives --- Liquidity --- Lender of last resort --- Moral hazard --- Asset and liability management --- Financial sector policy and analysis --- Sovereign debt restructuring --- Economics --- Financial risk management --- Banks and banking, Central --- Debts, External --- United States

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In a press release issued on August 18, the IMF Executive Board announced that on August 3 it had discussed making the independent Evaluation Office operational (see Press Release No. 00/27) and agreed to the publication of the background paper that provided the basis for the discussion, as well as the Chairman’s concluding remarks.

Banks and Banking --- Exports and Imports --- Finance: General --- Foreign Exchange --- Money and Monetary Policy --- Financial Risk Management --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financial Aspects of Economic Integration --- General Financial Markets: Government Policy and Regulation --- National Budget --- Budget Systems --- International Financial Markets --- Financial Crises --- Currency --- Foreign exchange --- Finance --- International economics --- Monetary economics --- Budgeting & financial management --- Economic & financial crises & disasters --- Exchange rates --- Exchange rate arrangements --- Currencies --- Monetary unions --- Exchange rate stability --- Money --- Economic integration --- Currency markets --- Financial markets --- Financial risk management --- Budget --- Foreign exchange market --- Financial crises --- Malaysia