The Effect Of Market Discipline On Commercial Banks Risk

Commercial banks' function is also indispensable in the financial market,so,how to achieve effective supervision of banking industry is of great significance for preventing mass crisis.According to regulatory practice in many countries,effective supervision of banking industry is essentially a dynamic balance between flexible and appropriate government intervention and developed market self-regulation.The market discipline mechanism is driven by the concern of market-related participants for their immediate interests.It aims to use market-oriented behavior to influence the bank's risk through the banks' operating performance,and finally form a normalized regulatory means.Although market discipline mechanism theoretically can reduce commercial banks' risk level,the effect of market discipline on banks risk level is still affected by many other factors.Based on the above,this paper focuses on the question of "how market discipline affect the risk level of commercial banks".Based on the use of the SYS-GMM method to study the effect of market discipline on different banking businesses,the implementation of explicit deposit insurance is incorporated into the research framework to study its impact on market discipline.By using related business data in 78 commercial banks of different sizes from 2007 to 2018,this paper mainly draws the following conclusions.(1)The overall bankruptcy risk of China is more affected by the factors of macro-economy.Furthermore,the implementation of the explicit deposit insurance makes banks operate more market-oriented and strengthen the punishment effect of market discipline on the high-risk banks.(2)Market discipline can indeed affect banks' credit risk and moral hazard.From the perspective of different types of banks,the market discipline effect in local commercial banks is particularly obvious.From the perspective of different channels,while quantity discipline is more effective in controlling the size of bank liabilities,price discipline has a more significant effect on inhibit bank credit risk.(3)As an important supplement in the process of marketization of interest rates,the protection of explicit deposit insurance in extreme situations has enabled part of those small sized banks to better balance the principles of "profitability" and"security" in their daily operations.However in the same time,it has also changed the banks' tolerance for risk loans and the quality of credit assets are more likely to be reduced.To sum up,market discipline can indeed affect bank risks in china,and the continuous establishment of related policies has also strengthened the market the risks of bank operations,but there is still room for further deepening and improvement.