Do depositors punish banks for bad behavior? market discipline, deposit insurance, and banking crises
Over the last two decades, both developed and developing countries have endured severe banking crises. The U.S. savings and loans (S&Ls) debacle in the 1980s, the chilean banking crisis in the 1980s, the Argentine and Mexsican crises in the mid-1980s and 1990s, as well as the recent financial turmoil in Asia and Russia are only a few examples. At all times and, particularly, to avoid banking crises, regulators need to find ways to promote prudent behavior by banks, The standard recommendation is four countries to tighten supervision and prudential regulation. Alternatively, rather than depending exclusively on regulatory action, banking authorities can also increase their reliance on market discipline to oversee banks.