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The New Bail-in Regime and the Need for Stronger Market Discipline: What Can We Learn From the Greek Case?

International Journal of Finance & Banking Studies

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Title The New Bail-in Regime and the Need for Stronger Market Discipline: What Can We Learn From the Greek Case?
 
Creator Vasileiou, Evangelos; University of the Aegean
 
Subject —
Market Discipline; Deposit Insurance; Governance Indicators; Sovereign Debt Crisis; Greece; European Monetary Union
 
Description Effective Market Discipline (MD) puzzles financial economists and regulators for decades, while the recent bail-in legislation for European banks extremely raises the need for even stronger MD. It may not be exaggeration to say that a new regime for the European banking market is born after the aforementioned decision. This paper’s objective is the broader MD examination, using variables that are not usually included in MD studies, but concern the European Union (EU) and the European Monetary Union (EMU) in the last years. In particular, apart from banking, deposit insurance and pure macroeconomic indicators, we also include governance and sovereign debt indices. The new regime may need a new MD approach. We choose Greece to implement our assumptions, because it is the country with the most severe economic, sovereign and governance problems in the EU. We employ data for the period 2002-10. The empirical evidence supports that market discipline is superficial, while there is ample evidence that MD is directly influenced by the poor governance performance and the excessive government debt. Greek authorities have to make major structural reforms in order to create the conditions for long-term stability, while our analysis points out some EMU’s shortfalls. 
 
Publisher SSBFNET
 
Contributor —
 
Date 2014-01-31
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/262
 
Source International Journal of Finance & Banking Studies (ISSN: 2147- 4486); Vol 3, No 1 (2014): January; 85-113
2147-4486
 
Language eng
 
Relation http://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/262/340