Description:
This study seeks to assess the phenomenon of market discipline in Brazil and analyze whether the increase in deposit insurance coverage in 2013 and the role of financial intermediaries in the funding market changed this discipline. The database includes accounting information of Brazilian banks from 2010 to 2017. We calculated the parameters using the Systemic Generalized Method of Moments (GMM-Sys). We found evidence of market discipline through the cost of funding and maturity, with the size of banks and their capitalization being the main disciplining factors. Deposit insurance has reduced market discipline for both price and maturity mechanisms, while intermediaries have reduced the size and capitalization advantages of banks. The results did not indicate the existence of market discipline through the quantity mechanism and deposit insurance did not change this scenario. Brokerage firms also reduced the size and capitalization advantages of this mechanism. However, significant indicators in the market discipline literature, mainly related to banks' credit portfolios, were not relevant in the Brazilian market, indicating that discipline might be reinforced. The results were similar in the analysis excluding “too-big-to-fail” banks, with slightly higher parameters, indicating that the discipline is stronger for smaller banks