The Research Of Market Discipline In Banking Supervision

Finance is the core of the modern economy, financial supervision is the foundation of the financial development and security. Need to realize the sustainable economic development, the financial system operating stably are all-important. To aim at the destination, not only require market mechanism owning function of self-adjustment and self-stabilization, but require governmental effective and moderate intervention. This point has already been proven by the economic growth since Great Depression in 1929, currently, financial tsunami caused by subprime mortgage crisis is the latest exemplification. So, how to find the optimum combining site and realize dynamic equilibrium between government supervision and market discipline is still the fundamental issue of the banking regulation.The thesis start with the current global hot issue: rethinking and adjustment about banking supervision from the view of market discipline mechanism of banking supervision. This paper focus on give reconsideration to market discipline in banking supervision and promote rational thought about coupling relation between the market discipline and official supervision. The purpose of this study is to reconstruct regulation system, establish modern banking regulation system compatible with incentive and market leading, then apply to practice of Chinese banking regulation reform. The thesis answer four questions according to logic:"what is market discipline of banking supervision?""Is market discipline effective?"Which is influencing factor?""How to tamp market discipline micro mechanism in supervision rebuilding and strength its effect in design of banking safety net?"and"how to introduce market discipline to perfect building supervision based on national conditions", attempt to set up a systemic and scientific frame of market discipline theory and present some feasible measures.The thesis establish four dimensional framework of market discipline mechanism: subject of implementation, implementation procedure, implementation approach, and implementation foundation by tracing the origin of market discipline theory and its development course, introducing the latest research literatures at home and abroad including New Basel Capital Accord. Four dimensions need each other, form market discipline structure compatible with incentive. The establishment of frame answers the question: what is the market discipline. To achieve banking supervision's macro target with market discipline function; the market discipline model based on implement foundation focus on microcosmic factors influencing the efficiency of market discipline function; the market discipline model based on banking optimum operation confirm the market discipline can play the function of official capital constrain to some extent. Model analyses show the essentiality of moderate market discipline and necessity of perfecting micro mechanism of implementing market discipline. We find tangible proof to testify market supervision exist in faith through empirical test based on implementation procedure. There is little study on market influence but major part support the efficiency conclusion. The trend of the latest study is to present reliability of efficiency test by combining implementation procedure and foundation, this paper uses the factor analysis to construct safety factor evaluation model of Chinese banking operation, observe the effect of market discipline of 14 banks from 2000-2007 by introducing implementation basis variable based on the correction of classical model of Demirgug-Kunt and Huizirtga(2004). The research conclusions provide evidence of intensification of market discipline.It is possible to combine market discipline with official supervision because of their relationship of the unity of opposites. Supervision reflection on subprime mortgage crisis make the combination become more fervently. New institution economics and supervision notion of incentive compatibility provide theoretical evidence for this combination. So, it is the rational option to rebuild supervision system, construct modern banking supervision system of market leading and incentive compatibility and realize the optimum combination between market discipline and official supervision. Implement rebuilding of the supervision mechanism has to need both reforms. Reconstruct banking safety net of official supervision. We combine theoretical analysis, model deduction and empirical study, analyze mechanism of combination between banking safety net and market discipline, then present suggestions about institutional design based on the analysis of old disadvantage and new problem of current banking safety net. The suggestion Include establishing the new framework based on generalized and prudent regulatory principles from four levels of implementation frontier, decision system, execution mode and support mechanism; arranging system of equivocal Final International Creditor under moderate transparency from aspects of legislation support, discrimination mechanism, assistance strategy and perfect institution; setting up credible explicit deposit insurance system by implementing limited deposit insurance system, deciding risk premium rate and optimizing insurance organization form.The thesis finally analyses the necessity of strengthening market discipline to improve banking regulation's rebuilding, put forward micro mechanism of implementation foundation of market discipline from aspects of perfecting Infrastructure of financial market, strengthening transparency of financial operations and perfecting banking corporate governance, present constructive measures about perfecting prudent supervision of Chinese existing banking safety net and design of lender of last resorts, abolishing implicit guarantee, establishing explicit deposit insurance system and market exit mechanism. The measure apply market discipline system to whole process of banking regulation"precautionary management—emergency assistance—market exit", finally realize combined function of official regulation and market discipline and achieve Pareto improvement.The purpose of the thesis is to perfect analytical frame of banking supervision market discipline and reflect on the financial crisis from the perspective of supervision, provide references for adjusting and reforming global financial regulation, offer decision support to carrying out state financial strategy.