Deposit interest rates, asset risk and bank failure in Croatia [An article from: Journal of Financial Stability]

This digital document is a journal article from Journal of Financial Stability, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Financial deregulation, while beneficial in the long-term, seems to be linked to instability. Intense competition for deposits appears to be an ingredient in instability. We examine the aftermath of deregulation in Croatia, which included rapid growth of both deposits and deposit interest rates, followed by numerous bank failures. Using panel regression techniques, we find evidence of ''market-stealing'' via high deposit interest rates. We connect high deposit interest rates to bank failure using logit models. High deposit interest rates were a reliable signal of risk-taking. When supervisory capabilities and powers are weak, deposit interest rate regulation may be worth considering.