Research On The Function Of Market Discipline In Subordinated Debt For Commercial Banks Of China

After the financial crisis in2007, the Basel Accord III set new standard of capitaladequacy ratio to commercial banks, then, China promulgated “Commercial BankCapital Management Method” which required to hike bank’s capital adequacy ratio,meanwhile, set new requirement for subordinated debt that counted as Banksupplementary capita in order to correct the purpose of issuing subordinated debt forChinese commercial banks, who used to issuing subordinated debt only to add morecapital and hike capital adequacy ratio, put the emphasis on the earliest purpose ofissuing subordinated debt which means to perfect the market discipline mechanismand promote the development of Chinese Banking. After ten years’ development, thedevelopment of subordinated debt would surely come to a new stage. This paper ishoping to investigate and study the market discipline in subordinated debt for Chinesecommercial banks, this article has made a great deal of explorations into the marketdiscipline in subordinated debt for Chinese commercial banks during2006-2011.At first, this article summarized the related documents of discussing marketdiscipline in subordinated debt, made a whole framework with theory basis and themechanism of market discipline in subordinated debt. On the basis of the framework,this article made a compare in market discipline in subordinated debt of Chinesecommercial banks and foreign commercial banks, explored the reference significancefor China for knowing more about how to develop the market discipline insubordinated debt for Chinese commercial banks. After that, the article made aresearch to market discipline in subordinated debt for Chinese commercial banksduring2006-2011by an econometrics model, and distinguish the sample withstate-owned banks and non state-owned banks, listed banks and unlisted banks, banksthat used to issue subordinated debt and banks that issue subordinated debt the firsttime. This paper found that: Despite several reforming in issuing subordinated debt,the function of market discipline is still weak, and this function is stronger instate-owned banks, listed banks and banks that used to issue subordinated debt.Factors, for example, information establishment and transformation, banks holdingeach other’s debt, government guarantee and bank governance structure had a greataffect on the function of market discipline in subordinated debt. Chapter five putforward some policy advices on how to strengthen the function of market discipline insubordinated debt, for example, to design reasonable interest of subordinated debt, improve the system of information disclosure and conduction, improve the bank’sgovernance structure, set up the deposit insurance system. Improve the developmentand the international competitiveness of China banking with market discipline andofficial supervision.