Market discipline: a review of the Mexican deposit market


  • Edgar Demetrio Tovar-García National Research University ‘‘Higher School of Economics’’



Market discipline, Deposit market, Bank risk, Mexico


This paper studies the mechanisms of market discipline in the Mexican deposit market. It tests the hypothesis that low-quality banks pay higher interest rates on deposits, receive fewer deposits, and shift their deposit agreements from long to short term. This hypothesis was assessed with positive evidence in Mexico during the period 1991–1996, but was not checked again. This research uses a dynamic panel model and a sample of 37 banks from December 2008 to September 2012 to re-evaluate the market discipline hypothesis. The findings suggest a weak presence of discipline induced by depositors. Principally, market discipline is absent within market sectors.


Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297

Baquero-Latorre MA (2000) Disciplina de mercado en la banca ecuatoriana: evidencia con datos de panel. Dirección de Investigaciones Económicas, Banco Central del Ecuador. Available via CEMLA, Accessed 08 Oct 2013

Barajas A, Steiner R (2000) Depositor behavior and market discipline in Colombia. IMF working paper no. 00/214. Available via IMF, Accessed 08 Oct 2013

Ben-David I, Palvia A, Spatt C (2013) Banks’ internal capital markets and deposit rates. Working paper. Available via Fisher College of Business, OSU Accessed 10 Feb 2014

Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econ 87:115–133

Bundevich LC, Franken MH (2003) Disciplina de mercado en la conducta de los depositantes y rol de las agencias clasificadoras de riesgo: El caso de Chile. Econ Chil 6(2):45–70

Calomiris CW (1999) Building an incentive-compatible safety net. J Bank Financ 23:1499–1519

Calomiris CW, Powell A (2000) Can emerging market bank regulators establish credible discipline? The case of Argentina, 1992–1999. NBER working paper no. 7715. Available via NBER, Accessed 08 Oct 2013

Demirguc-Kunt A, Huizinga H (2004) Market discipline and deposit insurance. J Monet Econ 51:375–399

Diamond DW, Dybvig PH (1983) Bank runs, deposit insurance, and liquidity. J Polit Econ 91(3):401–419

Distinguin I, Kouassi T, Tarazi A (2013) Interbank deposits and market discipline: evidence from Central and Eastern Europe. J Comp Econ 41(2):544–560

Flannery M (2001) The faces of market discipline. J Financ Serv Res 20(2/3):107–119

Galindo A, Powell A, Loboguerrero AM (2005) Latin American banks, market discipline and official regulation: completing the circle. Working paper, inter American Development Bank. Available via SSRN, Accessed 08 Oct 2013

Goday V, Gruss B, Ponce J (2005) Depositors’ discipline in Uruguayan banks. Documento de Trabajo No. 003-2005, Banco Central del Uruguay. Available via Accessed 08 Oct 2013

Huybens E, Luce JA, Pratap S (2005) Financial market discipline in early-twentieth-century Mexico. J Econ Hist 65(3):757–778

Ioannidou V, de Dreu J (2006) The impact of explicit deposit insurance on market discipline. CentER discussion paper No. 2006-05. Available via SSRN, Accessed 08 Oct 2013

Levy-Yeyati E, Martinez-Pería M, Schmukler S (2004) Market discipline under systemic risk: evidence from bank runs in emerging economies. Working paper 02/2004, Universidad Torcuato Di Tella. Available via Accessed 08 Oct 2013

Luce JA (2000) Seguros bancarios y disciplina de mercado aplicación a la crisis financiera de 1907 en México. Gaceta de Econ 5(10):121–152

Márquez AJ (2011) El seguro de depósito y su incidencia en la disciplina de mercado en Colombia. Coyunt Econ Investig Econ Soc 41(2):87–117

Martinez-Peria M, Schmukler S (2001) Do depositors punish banks for bad behavior? Market discipline, deposit insurance, and banking crises. J Financ 56:1029–1051

Mayorga-Martínez M, Muñoz-Salas E (2002) ¿Existe disciplina de mercado en el sistema bancario costarricense? Econ Soc 20:61–100

Murata K, Hori M (2006) Do small depositors exit from bad banks? Evidence from small financial institutions in Japan. Jpn Econ Rev 57:260–278

Park S (1995) Market discipline by depositors evidence from reduced form equations. Q Rev Econ Financ 35:397–513

Park S, Peristiani S (1998) Market discipline by thrift depositors. J Money Credit Bank 30:337–363

Romera MP, Tabak BM (2010) Testing for market discipline in the Brazilian banking industry. Banks Bank Syst 5(3):112–128

Semenova M (2007) How depositors discipline banks: the case of Russia. Economics education and research consortium working paper No. 07/02. Available via Accessed 08 Oct 2013

Tovar-García ED (2012) Market discipline in Mexican banks: evidence from the asset side. Cuad Econ Span J Econ Financ 35(99):172–181






Regular articles

How to Cite

Market discipline: a review of the Mexican deposit market. (2024). Latin American Economic Review, 23, 1-33.

Similar Articles

1-10 of 29

You may also start an advanced similarity search for this article.