5. Concluding remarks
Market discipline has the potentialto increase financial stability in the banking sector. This potential is observed because depositors’ risk aversion encourages banks to reduce risk, that is, to select safer asset portfolios and increase equity levels. The market discipline mechanism has been extensively studied in the literature but only to a minor extent in the case of cooperative banks. The article fills the gap by analyzing depositors’ reactions to cooperative banks’ risk in Poland in the context of the banks’ internet activity. The results allow us to draw two major conclusions. First, although cooperative banks serve less financially sophisticated customers from mostly rural areas and small cities,their depositors are able to appropriately distinguish between less risky and more risky institutions. Second, more internet-active banks face stronger market discipline, and their depositors pay special attention to banks’ equity levels. The reasons why this situation arises are twofold. A bank’s extensive internet activity is a reflection of its eagerness to present information about itself, i.e., it increases transparency, especially if a bank publishes its financial statements for a longer period on its website. In addition, the adoption of online banking systems and presenting detailed information about the deposit offer on the bank’s website boost deposit mobility. The availability of an online banking system can be thus treated as an additional tool with which depositors can effectively discipline a bank.
