Empirical Evidence On Market Discipline Effects On The Banking Industry In China

Financial stability is the foundation of macroeconomic stability. In order to prevent the outbreak of the financial crisis, countries generally strengthened the supervision and regulation on financial institutions. Financial regulation comes along with the existence of banks. People’s understanding of the official regulation and self-regulation has been deepening since the financial crisis out broke. Since the beginning of this century, the complexity and variety of financial market make people realize that it is more and more important to supervise banks with the power of market. It is a new topic that how is the performance of market discipline in the process of banking market reform of bank industry in our country, and how to make full use of market discipline to promote the marketization of bank industry.This paper mainly studies the effect of banking market restraint, and discusses how to use market’s power to regulate banks effectively. First, this paper starts with introducing the background and significance of this study. In order to form a clear and comprehensive understanding of market discipline as possibly, the paper surveys the researches and literatures on market discipline of both foreign and domestic scholars, involving the operation mechanism of market discipline, the performance of supervision, benefit-cost research, information disclosure evaluation, effective conditions and empirical analysis. Then, this paper uses comparative analysis method to discuss the operation mechanism of market discipline, and analyzes the means and process of market discipline from the perspective of shareholders, subordinated bond holders, depositors, customers and industry self-discipline, before drawing a prerequisite for effective market discipline. Finally, on the one hand, this paper analyzes the problems of the current situation of China’s market discipline, which leads to the necessity of market regulation and supervision on financial market in China. On the other hand, this paper selects the volatility rate of banks’stock prices as variables, using financial panel data model to test the market discipline effect of the bank industry of our country, and conclude that China has made an obvious progress in banking market discipline effect, but still to be strengthened urgently. This paper also puts forward specific suggestions on how to enhance the market discipline, on purpose of having the market discipline of our country play a greater role in supervision and regulation.In this paper, the bank’s risk assessment is based on the "carpal" supervisory index system which the CBRC recently developed so that it can be more practical to measure the health of our banking market discipline, and more reasonable in terms of policy suggestions, to promote the Chinese banking market reform.