Market Discipline And Its Institutional Prerequisites

In recent years, the widespread financial crisis that break out of the world lets people realize a lot of limitation of the traditional financial supervision mode gradually, among them an important respect lies in ignoring the role in financial supervision of market strength promptly. The New Basel Capital Accord has affirmed the important position in financial supervision of market discipline, make more and more people interested in market-based financial supervision, and foreign scholars also carry on a large number of theoretical and empirical research on it. By contrast, the domestic scholars' study on this respect is still relatively deficient, and need deeper discussions. This paper is a good try in this respect.The paper first gives the definition of market-based financial supervision, point out that its core is market discipline. Then, it explains the necessity of supervision from the fragility of financial market. And from the deficiency of traditional supervising, it explains why the market- based financial supervision attracts more and more supervisors of various countries. Detailed analysis on this foundation that compares mechanism of market discipline with official restraint and internal management is done, and concludes that the three mutually combine only, could reduce the risk of the bank to the maximum extent, make the conclusion of the good supervision result. Then it utilizes 80 countries' data of national financial supervision and financial development in the world, have analyzed the market-based relevant institutional factors of financial supervision (the government's power, private ability to supervise and law, etc.) relation with the bank and financial development. Empirical results indicate institutional factors (degree of state-owned banks and clear deposit insurance system for instance) that impede market discipline can hamper the progress of bank and finance too, guarantee or strengthen institutional factors (protect degree such as private ability to supervise and property right) that strengthen market discipline can promote the development of bank and finance also. So market discipline to give full play to not only can strengthen validity of financial supervision, but will have a positive impact on finance development. This paper considerseffective prerequisites of market discipline, and the institutional frameworks for market discipline in our country finally. The requirements and prerequistes for our country market supervision to effectively operate must perfect the following system: corporate governance of the banks, information-disclosing system, the insurance system of the deposit and legal system, etc.