Study On Risk-Taking Behavior Of Banking And Market Discipline Mechanism

We bring forward a systemic research framework for the market discipline mechanism of banking in China under the institution of implicit insurance after reviewing the related literatures on market discipline and risk-taking behavior of banking. We respectively study the different functional mechanisms of fully implicit insurance and partially implicit insurance on the risk-taking behavior of healthy banks and unhealthy banks. It can partially explain some risk-taking behavior of large stated-owned banks and median-and-small sized banks. Our study shows that governmental implicit insurance doesn't necessary induce the risk-taking incentive of all banks, but possibly encourages the risk-taking incentive of unhealthy banks. How to restrict the risk-taking incentive of unhealthy banks? Legal supervision and market discipline are the two usually exterior approaches. How the supervisory authorities to restrict the risk-taking behavior of banking through the manner of supplementary capital requirement and regulatory examination etc. is not our minds. We are interested in the approaches how to enhance market discipline itself, such as information disclosure and mandatory subordinated debts requirement, to restrict the larger risk-taking behavior of banking. Therefore, we respectively positively study the behavior modes of market discipline of urban commercial banks and the effectiveness of market discipline of information disclosure of large and middle commercial banks based on the Bankscope dataset. Meanwhile, we also study the market discipline functional mechanism of subordinated debts. We gives the intrinsic conditions and boundaries when subordinated debts plays the role of market discipline, and we also study how some regulatory and supervision policies such as legal minimal capital requirement affect the function of market discipline of subordinated debts.The paper extensively applies many kinds of theoretic approaches and technical tools to systematically study the risk-taking behavior and market discipline mechanism of banking in China under the institution of implicit insurance through the manner of mathematical modeling and positive modeling. The structure of paper is arranged as followed: Chapter 1 reviews the related literatures on market discipline and risk-taking behavior of banking. Combing with the institutional and practical backgrounds of China, we bring forward a systemic research framework for the market discipline mechanism of banking under the institution of implicit insurance. In chapter 2, we study the effects of fully implicit insurance on the risk-taking of banking. Chapter 3 studies the effects of partially implicit insurance on the risk-taking behavior of banking, and comparatively studies the policy effects and environment dependence of the two kinds of implicit insurance policies. Chapter 4 positively investigates the effects of information disclosure on market discipline and risk-taking behavior of banking based on the analysis of the datasets of 14 large-and-middle commercial banks. Chapter 5 studies the effectiveness and relevant market discipline mechanism of urban commercial banks under the institution of implicit insurance. Chapter 6 studies the effectiveness and intrinsic mechanism of subordinated debts as an incentive mechanism of market discipline based on the contingent valuation pricing theory.The primary innovations of the dissertation are as follows: (1) study the different functional mechanisms of different implicit insurance policies on the risk-taking behavior of banking; (2)study the relationship and relevant mechanism between information disclosure and risk-taking behavior of banking; (3)positively study the market discipline behavior of urban commercial banks under the institution of implicit insurance; (4)study how to enhance market discipline by introducing subordinated debts, and the relevant functional mechanism of market discipline of subordinated debts.