The Implicit Insurance Under The Conditions Of China's Banking Market Constraints Empirical Research

Market discipline mainly means that the creditor, owners and other stakeholders of thefinancial institutions will keep concerned about the operation of financial institutionsto protect their own interests. When necessary they should take certain measures toinfluence the interest rates and asset prices on financial institutions to make a bindingeffect on the operation of financial institutions through financial markets.As China carries out the policy of Implicit Deposit Insurance system in a long period,and it causes the weak risk awareness of main participants of market, who cannothave the prospect response toward banks of different characters and risks. So withoutthe stimulation to make a pressure of market discipline, the capability of marketdiscipline is still very weak.The paper has five chapters. The first chapter is the introduction. It gives a simpleintroduction of the context of selection on the theme, the research outline and thestructure of this paper. It illustrates the point that the ability of market discipline ofChinese financial market is weak under the background of implicit insurance ofdeposit.The second chapter gives a meaning of market discipline from aspect of theory at first.And then analyzes its content in the New Basel Capital Accord from the applicationaspect, and evaluate the outcome of empirical test of market discipline made byscholars domestic and abroad from the empirical aspect.The third chapter is the core of the paper, on the basis outcome of Demirguc-Kunt andHuizinga (2002) and combining the character of Chinese financial market andAccessibility of data, we test the relationship between the growth rate of deposit andbank liquidity ratio, capital ratio, profit ratio respectively, and the relationshipbetween interest rate and bank liquidity ratio, capital ratio, profit ratio respectively. Atlast we get the conclusion that the relationship is closer between the growth rate of deposit/interest and profit ratio. From that we know the market discipline of China isweak.The forth chapter analyze the situation of market discipline under the background ofimplicit insurance of deposit from theory aspect. From the research we know that atpresent we cannot introduce the market discipline into China because of the existenceof institutional constrains.The fifth chapter is the conclusion and suggestion. We should strengthen some aspectsincluding financial market structure, Market Subjects, Internal Management Structure,Information Disclosure and market Withdrawal Mechanism.