A Study On The Markte Discipline Of China Bank Supervision

In recent years, the widespread financial crisis that has swept the world promts people to gradually realize limitations of the conventional financial supervisory framework. As a result, the role of market discipline in the supervision of banks is being highlighted. Minimum capital requirement, official supervision and market discipline have been promoted by the new Basel Accord as the three pillars of bank supervision.The market discipline by investors in China is weak due to the various reasons. Because of this,, bank managers tend to focus almost exclusively on profitability and ignore safety of bank assets in management. The high level of risk taking by banks not only aggravates the challenges facing the supervisory authorities but also increasingly exposes the whole Chinese banking system to systemic risks. In the face of the opening up of China’s banking system, the supervisory authorities are under pressure to take measures to enhance the market discipline on banks and mitigate bank risks. That is exactly where the practical significance of this thesis lies.This thesis consists of seven chapters.Chapter one reviews the relevant literature, including corporate governance of the banks, information disclosure, the operational mechanism of depositor market discipline and the subordinated debt market discipline.Chapter two focuses on corporate governance and information disclosure. It commences with an overview on main theories of information disclosure on the basis of controversies around the constraints on information disclosure. Secondly, this chapter analyses the impacts on information disclosure of inside and outside mechanisms of corporate governance, and verifies the close links between corporate governance and information disclosure. Thirdly, the chapter expounds on the information disclosure index of judgment and effect of market discipline.Chapter three summarizes definitions, research scopes and conditions for market discipline, and discusses the operational monitoring mechanism of market discipline exerted by depositors and the subordinated debt and financing custom.Chapter four analyses the influence mechanism of market discipline from macro-micro scope,and estimate the reaction extent of banks on the influence mechanism of market discipline exerted by financing custom. Chapter five analyses the limits of and the need to introduce market discipline. We also discuss implications of the market discipline for official supervision, and compare and contrast the differences and links between market discipline and official supervision. Both of them are a part of the banking supervision system. At the same time, the chapter analyzes the scope and strength of official supervision, and makes a clear distinction between market discipline and official supervision.Chapter six analyses current problems in corporate governance, information disclosure and market discipline in China, and put forward proposals for improving market discipline in China.Chapter seven summarizes the main research conclusions of this thesis, and suggests direction of future research.