Market Discipline and City Commercial Banks’ Risk Taking

Yaling WANG, Yingzhi LIU

Abstract


Since the end of 2006, commitment period of China’s joining into the WTO is over, Chinese bank industry fully opened, and market competition has become stronger. But China has an implicit deposit insurance, under this circumstances whether market discipline exists in city commercial banks has become an important question. This paper used data from 60 city commercial banks between 2003 and 2010 to analyze this issue. Study shows that before Chinese bank sector fully opened, the power of market is weak, market is unable to restrict city commercial bank’s risk effectively; in the wake of Chinese bank sector opening at the end of 2006, the power of market discipline gradually appeared, which controlled risk taking efficiently by price mechanism, but quantity discipline is always not obvious.

Key words: Market discipline; Banking sector; Risk taking


Keywords


Market discipline; Banking sector; Risk taking

References


Ashcraft (2006). Does the Market Discipline Banks? New Evidence from the Regulatory Capital Mix. Federal Reserve Bank of New York Staff Reports.

Avery, et al. (1988). Market Discipline in Regulating Bank Risk: New Evidence from the Capital Markets. Journal of Money Credit and Banking, (20), 579-610.

Demirgüç-Kunt, Asli., & Huizinga, Harry (1999). Market Discipline and Financial Safety. Net Design World Bank Policy Research.

Bliss, & Flannery (2000). Bank Holding Companies: Monitoring Versus Influencing.

Blum (2002). Subordinated Debt, Market Discipline, and Banks’ Risk Taking. Journal of Banking & Finance, 26, 1427-1441.

Jagtiani, Julapa, & Lemieux, Catharine (2001). Market Discipline Prior to Bank Failure. Journal of Economics and Business, 53, 313-324.




DOI: http://dx.doi.org/10.3968%2Fj.mse.1913035X20120603.Z0124

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