Bank Time Deposit Rates and Market Discipline in Poland: The Impact of State Ownership and Deposit Insurance Reform

• Published in: Journal of financial services research 1999-05, Vol.15 (3), p.179-196
• Main Authors: Opiela, Timothy, Mondschean, Thomas
• Format: Article
• Language: English
• Subjects: Bank rates; Banking industry; Banking law; Capital market; Commercial banks; Currency; Deposit accounts; Deposit insurance; Financial risks; Financial services; Guarantees; Households; Insurance coverage; Insurance policies; Interest rates; Interest rates-deposits; Ownership; Poland; Privatization; Regional banks; Regulation of financial institutions; Regulatory reform; Studies; Transition economies; Trends
• ISSN: 0920-8550; 1573-0735
• DOI: 10.1023/A:1008140716508

A study examines the impact of ownership structure and changes in the deposit insurance system on the market for bank time deposits in Poland. In an environment of less restrictive bank supervision and a deposit insurance policy that favored state banks, it was found that depositors exacted a price for risk-taking. After a new law increasing insurance coverage for private banks went into effect, however, bank specific variables became less important in explaining differences in deposit interest rates. Still, it was found that the 3 fully guaranteed state banks pay significantly lower rates than private banks. Moreover, other state-owned banks, with the same explicit guarantee as private banks, pay significantly lower rates than private banks, so it appears that depositors treat these state-owned banks as if they have a larger implicit share.