Banking Market Constraints

Market discipline is a process in which the creditors or owners of a bank will transfer their deposits or assets from an unsound bank to others (according to the information exposure which comes from the bank and other institutions such as the lawyer office, the accountant office and the valuation institution of credit, etc.) in order to assure that the bank will run soundly, or it will be keep out of the market. As a way of exterior supervision, the market discipline can not only effectively make up the innate defects of authority supervision but also promote the interior management of a bank. The power of market discipline will overcome the power of authority supervision if an economy is highly marketed; or the adverse is true. In a developing nation, market discipline can also act if it has a good ownership and management right structure and an efficient regulation of stimulation and discipline. But it is not enough if we want to get the power of market discipline to maximum. So some preconditions must be met in these countries which means good micro base of economy, including perfect information exposure, better company management structure, limited safe net; restrict market-seceded regulation; competitive market structure; flourishing financial market and perfect laws system, etc. Of course, sound macro economy circumstance is the first premise of efficient market discipline since the market discipline achieves its goals by means of action to single bank. If the bank has problems, the function of market discipline will get into trouble.As a typical example, Newzealand seems prefer to the power of market discipline between the authority supervision and the market discipline, and the country seems get success so far. Newzealand's experiences include two aspects: one of it is that Newzealand has good macro economy circumstances and sound bank system in the view of macro point; the other is that it has good finance base facilities including perfect information exposure, perfect corporate management structure and efficient supervision of the managers of banks. But are the experiences of Newzealand general? What enlightenment can it bring to us? The article analyzes all the issues concerned about by people and proposes the viewpoint of the author itself. In our country it is necessary to practice market discipline. The reasons lie in four aspects: first, the authority supervision has flaws, so it cannot act well; second, the interior management level of a bank is lower; third, it is the requirement of entering WTO; forth, the benefit of market discipline outdoes the cost which will occur if we have no it. We can structure the mechanism of market discipline before all the preconditions show up. In fact, only if the market exists, the market law will act. So we ought to put all things in order and create good circumstances for it in order that the market discipline can act well. Today, our financial reform has entered the crucial phase, the four state-run banks are partly running according to the requirement of market which differs from its original self-importance, and the small new commercial banks have been running according to the requirement of market from their establishment, and all else reform measures also practice as a form of a complete set, which provides conditions and space for the market discipline. For example, several accidents of "bank rush" in some small banks in our country during the years from 1998 to 1999 which is a show of market discipline, and it seems to warn us with the advice: do not ignore the exist of market discipline. So it has no more time for us to study the market discipline to banking. We must face to the issue bravely. If we want to practice market discipline just now, such questions must be resolved as follows: establish and complete management structure; enforce the information exposure; complete the related laws and enforce the supervision of the high grade managers of bank etc.The paper includes four chapters. The first chapter is preface, which explains the...