Abstract
This paper examines market discipline in Europe from a depositor standpoint. More precisely, we investigate the impact of the Cypriot deposit levy of March 2013 on depositors' perception of bank risk and sovereign weakness. Deploying a difference-in-differences regression, the varying impact on banks located in fiscally strong and weak countries is analysed. An additional cross-section and panel regression provides further evidence on pontential reemerging market discipline by depositors. The findings hint that financial constraints of sovereigns may lead to too-big-to-save expectations. However, additional findings indicate that the effects may not not exclusively tied to GIIPS countries but more generally arise due to high levels of government debt.
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