Requirements For Bank Supervision: A Study On Information Disclosure Quality And Cost Efficiency

The market discipline is defined as the Pillar 3 in the Basel II. The purpose of Pillar 3 is to complement the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). The market participants acted as the third party to appraise the bank management and capital allocation are necessary to the banks risk supervisory since the capital adequacy regulation is become more and more difficult and comprehensive. The disclosures provided under the Pillar 3 of the Framework will be essential in ensuring that market discipline is an effective complement to the other two pillars. So the quality of information disclosure is very important to dissolve the asymmetrical information problems and to strengthen the soundness and stability of the bank system.But to maintain stability is not enough for the bank system, to promote the banks' efficiencies based on appropriate efficiency appraisal is another supervision target. The authority can set individual bank supervision according to the different situation of each bank and enhance the financial resources utilization optimizing.This paper establishes the appraisal system combining the accounting and the regulation rules, and adopts the SFA method and the Translog model to research on the disclosure quality, cost efficiency and their relations of the listed banks in our country. It is significant for reducing the bank regulation cost and enhancing the usefulness of the information in theory and practice. The main innovations of the paper are shown as follows:1. The accounting standards and the bank regulations are the two most important rules on the information disclosure. But the existing researches emphasize the bank regulations only and neglect the accounting standards. The paper considers both of the rules combining the essential changes of the accounting standards during recent years. The paper establishes the appraisal system of information disclosure and makes empirical research based on the rules of China and advanced international requirements. We demonstrate the developing trends and the shortcomings of the disclosure of the listed banks in China.2. Because of the high non-performing loans and the conflictions about the accuracy of the provision for the bad loans in China, the paper puts forward the bank efficiency appraisal method considering the provision for the bad loans. We verify the judgment that the loan quality and the accuracy of the provision for the bad loans have significant influence on bank cost efficiency appraisal results.3. We empirically analyze the relationship between disclosure quality and the cost efficiency. The paper demonstrates that the disclosure quality can reflect the cost efficiency of the banks to some degree.