The Risk Of Monetary Policy, Market Discipline And The Commercial Banks

Basel2put forward three pillars:minimum capital requirement, government regulation and market discipline to regulate the risk of bank in2004. The government usually takes charge of the risk of banks with monetary policy tools. With the reform on market economy system, market discipline is becoming more and more important. Therefore, in this paper, we take16listed commercial banks as the research object and mainly research on the relationship among monetary policy, market discipline and the risk of commercial banks.In this paper, it takes three steps to do the research, which are theoretical analysis, empirical analysis and policy recommendations. Firstly, describe how monetary policy have an effect on the listed commercial banks’risk; Then, describe how market discipline have an effect on the listed commercial banks’risk. Theoretical analysis shows that, loose monetary policy will increase the risk of banks, and liberal economic environment also make banks more vulnerable; imperfect information disclosure mechanism would increase the risk of commercial banks, when monetary policy is no longer loose, the role of market discipline is more pronounced. In order to research on the interaction between variables, we also introduce some cross-variable and build models to take empirical test. The test shows that:the risk of monetary policy and commercial banks shows negative correlation; significant negative correlation exists between the bank’s risk and capital adequacy ratio; when the market discipline plays a more important role in the market, the bank’s risk can be controlled much better; market discipline in our country is not that effective; loose monetary policy environment can make market discipline more effective.Finally, on the basis of theoretical and empirical analysis above all, we propose some policy recommendations:to reduce protection and intervention from the government; to develop and implement market exit policies; to improve the system of information disclosure and enhance the effectiveness of market discipline.