Essays on financial intermediation in transition and emerging countries.

Summary In chapter 1 of this thesis, we empirically analyze the impact of the introduction of an explicit deposit insurance scheme on bank risk taking and market discipline in Central and Eastern European countries. We show that the introduction of a deposit insurance scheme in the 1990s led to high risk taking by banks. We also show that in the absence of an explicit deposit insurance scheme, the market discipline exercised by depositors through the interest charged on deposits is weak and disappears in the presence of an explicit deposit insurance scheme. However, in the presence of an explicit deposit insurance scheme, depositors exercise market discipline through deposits by withdrawing their assets from banks with a high risk profile. We also show that the risk-taking incentives generated by the existence of an explicit deposit insurance system vary with the quality of the institutional and legal framework in the country. In chapter 2, we analyze the disciplining role of interbank deposits and show the existence of market discipline exercised by banks since the introduction of an explicit deposit insurance scheme in Central and Eastern European countries. However, several factors such as bank ownership and the extent of the deposit insurer's power affect the effectiveness of this market discipline. Our results show that regulator discipline reduces excessive risk taking by banks but weakens market discipline. The empirical study in chapter 3 analyzes the type of activity and financing of foreign banks operating in emerging markets and the consequences for risk taking. We show that the activities and financing of foreign banks differ from those of domestic banks and that this difference leads to different types and levels of risk.