MARKET DISCIPLINE BY THRIFT DEPOSITORS

This paper tests for the presence of depositor discipline by examining the effects of depository institutions' risk on the pricing and growt h of uninsured deposits. The study analyzes a large panel of thrifts t hat includes detailed information on each firm's a deposit rate schedu les, balance sheet composition, and financial condition. This informat ion allows us to develop a time-consistent risk profile for thrifts. O ur empirical findings support the presence of market discipline. Riski er thrifts are found to pay higher interest rates and attract smaller amounts of uninsured deposits. We also find that qualitative results a re similar for fully insured deposits, although statistical significan ce is substantially lower.