This thesis contains three empirical essays in banking. The empirical analyses focus on the role of information in banking. This will be done by analyzing the effectiveness of three types of signals that are sent by banks. The first signal is the CAMEL-type indicators that measure the soundness of the banks. The second signal is the price offered by banks in attracting deposits. The third signal is the amount of risk related information that banks disclose in their financial statements. This thesis aims to answer a few key questions that are relevant in banking. Firstly, it aims to find if CAMEL-type indicators are able to predict subsequent decisions by regulators to fail banks. This analysis will focus on the banks' liquidity ratio before and during crises in finding whether high liquidity holding and high reliance on external funding contribute towards the subsequent failure of the banks. Secondly, it aims to find if depositors discipline banks by focusing on depositors' reaction to the price signal from banks. Lastly, it aims to find if depositors react to the amount of risk-related information that banks disclose. The empirical issues are analyzed using the sample of financial institutions in five crisis led East Asian countries namely Indonesia, Korea, Malaysia, Philippines and Thailand. Among the striking findings in Chapter 2 are that the effect of liquidity on the probability of bank failure varies before and during a crisis. The results show the vulnerabilities of banks to failure declines as a result of higher liquidity holding. The results also show that banks' probability of failure increases as a result of high reliance on external funding. Findings in Chapter 3 confirm the endogenous relationship between the price and quantity of deposits in the depositor discipline model. Panel data analysis shows that depositors' behavior in East Asia is driven by bank fundamentals and risk aversion activities and also by price movements. Dynamic panel data analysis is carried out to account for the lagged dependency of the deposits growth variable and endogeneity of the price mechanism in the depositor discipline model. The results show that depositors in East Asia do not demand a higher price for deposits. Analysis by subdividing the sample of banks into healthy and weak banks shows that the relationship between price and quantity is not non-linear. Healthy banks are not able to attract more deposits by raising price. Depositors do not discipline weak banks by demanding a higher return. Lack of responsiveness by depositors to price signals may be attributable to large the outflow of deposits that happened during the crisis period and regulations on interest rates. Analysis in Chapter 4 confirms that depositors are influenced by the content and also quantity of risk-related information disclosure. Panel data analysis shows that higher risk-related information disclosure enables banks to attract more funds only during the post-crisis period. Once the lagged dependency of the deposits growth variable and endogeneity of the price and disclosure mechanism is taken into account, estimation using dynamic panel data analysis shows that disclosure is a more effective signal in attracting deposits than price. These findings provide support to the proposition of the third pillar of the Basel II which aims to encourage market discipline by requiring banks to disclose more risk-related information. In line with the wake-up-call hypothesis, the findings show that depositors' responsiveness to the amount of information disclosure is higher during the post-crisis period. This study also finds that the effectiveness of disclosure signal varies according to the quality of banks. Depositors in East Asia reward good banks for disclosing more information but they do not discipline weak banks by demanding greater disclosure. Greater responsiveness of depositors to the disclosure signal of healthy banks compared to weak banks implies that disclosure is a more effective signal for healthy banks than for weak ones. Other issues analyzed in the thesis pertain to the relevance of the different type of econometric analysis used in carrying out the empirical analyses.

In this dissertation we investigate different aspects of capital regulations and their impact on the behavior of commercial banks. In chapter two, we foucs on the impact of capital regulations on risk-taking of commercial banks in developed and developoing countries separately and togahter. We find that such regulations indeed reduce the risk taking of commercial banks. At the same time, we examine the relationship between capital ratios and risk taking. In line with previous literature, we find that this ratio is negative also. Further examinations including the degree of liberalization and the level of finanicl development did not yield conclusive results. In chapter three, we examine the relationship between the capital regulations and total lending and total depositis. We do not find conclusive evidence in support of the ‘credit crunch' or the ‘ risk retrenchment' hypothesis. However, several important variables do show a tendency to change with capital ratios. As a result, changes in capital ratios in response to regulations do have important impact on bank lending and decision making. In chapter four, we study five South East Asian countries within the context of the crisis of 1996. First we test for the existence of depositor discipline in these countries and find that the sate of such discipline is very weak even after such a huge crisis. We also test the degree of risk taking in the banking industry in these countries. Evidence shows that perfect competition prevails in the bankins secotr. We also try to establist the link between "the index of depositor discipline" and "index of competition". But we don't find evidence in support of this.