A study on the market discipline of depositors as an effect of the general bank risk characteristics of local private universal banks for the period 1995 to 2002

Date of Publication


Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions


Ramon V. Del Rosario College of Business


Financial Management Department


Awarded as best thesis, 2003

Thesis Adviser

Estelito Biacora

Defense Panel Chair

Mary Jane T. Thiong

Defense Panel Member

Mia Caramat
Manrico Masagca


This paper tests for the existence of a market discipline by studying the effects of the general bank risks, as measured by the CAMEL ratios, to the level of deposits. To further study the behavior of depositors, deposits were taken apart to three classifications as to order of withdrawal: savings, time certificate, and demand deposits. The five components of the CAMEL ratios were also taken apart to isolate the results. Measurements of capital adequacy, asset quality, management soundness, earnings, and liquidity are further specified to the financial ratio its characterizes. A simple regression analysis was performed individually to the twelve universal banks to each CAMEL ratio to the three levels of deposits. This type of analysis was also performed on the aggregate level of deposits to the aggregate interest rates to ascertain the impact of the depositors to the latter. The five CAMEL elements and the three levels of deposits were made into one single equation in order to recognize the market discipline on each universal bank. These data were regressed using statistical tools and the results were analyzed and confirmed by means of statistical tests as per individual bank-level. The results of the data were further validated with accompanying literature and personal interviews and other consultations with persons of best authority on the matter.

All the levels of deposits were confirmed to have a significant impact on the level of interest rates. The depositor is likely to lead higher interest rates as outcome that should restrain these institutions from assuming added risk. Other factors such as quality of service, location, bank relationships, and other bank-specific conveniences offered cause the depositors to overlook the risk condition of the bank. Both statistical and empirical findings support the existence of a market discipline for the three levels of deposits.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

2 volumes : illustrations (some color) ; 28 cm.


Universal banks--Philippines; Banks and banking--Philippines

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