Study On The Mechanism Of Market Discipline In Subordinated Debt For Chinese Commercial Banks

Market discipline is one of the three pillars in the new Basel Accord in order to strength the banking supervision, and the subordinated debt has got more and more attention because of its special mechanism of market discipline. In recent years, most of commercial banks in China issued a great sum of subordinated debt for increasing their capital adequacy ratio, and the mechanism of market discipline would be helpful to the Chinese banking risk regulation and the develop of Chinese debt market, so this paper researches the mechanism of market discipline in Chinese banks and its impacting factors.On the base of chapter 2 summarizing the related documents at home and abroad, the charter 3 first discussed the characteristics of the subordinated debt as a new financing tool, especially comparing it with equity and debt in the operational mechanism of market discipline; Next, we analyzed in detail the designed characteristics of the Chinese banks' subordinated debt which could influence its role of market discipline, including mainly the arrangement of issuing time, pricing and investors and etc, and then introduced the designed characteristics of subordinated debt in the selected developed countries and zones and compared their similarities and differences for using as a source of reference for China. In the chapter 4, the paper first constructed a theory model for analyzing the impacts of various factors on market discipline of Chinese banks' subordinated debt, and then by an econometrics model further tested empirically the mechanism of market discipline in Chinese banks' subordinated debt. In the charter 5, the paper discussed further the reasons of the weaken market discipline mechanism in Chinese banks' subordinated debt, at the same time gave the corresponding recommendations on how to strengthen the mechanism of market discipline.