Depositors drive market discipline, shun risky banks in Japan.
The study looked at how risky behavior by small banks in Japan affected the amount of deposits they received. They found that riskier banks attracted fewer deposits, showing that depositors are careful about where they put their money. This behavior changed over time as regulations and deposit insurance systems evolved. The findings suggest that depositors are not willing to take on the risks of bank failures, even if their deposits are fully insured.