Study On Banking Capital Discipline And Market Discipline Efficiency Under The Deposit Insurance

Since 90s in last century, the supervision of the ratio of capital adequacy has been embraced in the regulation process of commercial banks in China. But the regulation of capital hasn't restricted the operation of commercial banks, and it has brought about high expense. While market discipline was recognized as the third pillar of new Basil, it has gradually realized that all parties in the market are the principal part of supervision. Unlike the past financial control, today's supervision should based on the respect of autonomy of banks, that is prudential supervision. However, with financial crisis and bank crash occurred in several countries and regions, the question of whether current supervision is appropriate and efficient is put forward.That is so-called Prudential Regulation, which means through enacting a series of prudential regulation rules, the government will enable the scales and risks of individual bank's asset to match its capacity of risk control. In general, the relevant rules of prudential regulation can be divided into two categories, capital requirement and internal control. Nowadays, both academic and practice unanimously supports the claim that appropriate capital adequacy ratio has positive influence on guiding away the risks of potential losses. However, what are the preconditions of exerting its validity? How market discipline as the third pillar of new Basil affect the choice of banks?Such research questions are under hot debate. Based on the principle of financial economics and the method of game theory, this thesis will study the influence of capital requirement on the bank loans choice under implicit deposit insurance institution, and analyze the requisite of effective capital regulation. Regarding some conclusions, empirical evidence will be found to support them.This thesis is composed of 6 chapters: Chapter One will give an overall review of the related literature on prudential regulation; Chapter Two reviews the theories concerning the issues for the paper to address. Chapter Three will analyze the mechanism of risk accumulation and the status quo of financial innovation in Chinese banking sector, and bring out the objective of prudential regulation; Chapter Four probes the co- efficiency of implicit deposit insurance and the supervision of the capital adequacy ratio, and discusses the requirement of the implementation of the supervision. Chapter Five works on the effectiveness of market discipline in financial sector under mechanism of deposit insurance. Chapter Six comes up with suggestion.