Study On Market Discipline Of Subordinated Bonds Issued By Chinese Commercial Bank

This paper researches subordinated debt market mechanisms, as well as its practical issues in China.Subordinated debt is a special form of debt; it is better than the company's share capital in order to repay interest, but below the company's general obligations. In this article, market mechanisms is defined as: the bank depositors, creditors, shareholders and counterparties stakeholders for their own interests to consider are concerned about bank operations and risk profile. In accordance with their own grasp of information and judgments of such information, they will take certain measures relating to the impact the bank interest rates and asset prices,that is to say, direct constraint. Asset prices change promote the official regulatory institutions to strengthen prudential supervision of the bank's indirect constraints. Market discipline as a very important external constraint forces, together with the official regulation is very important in maintaining the stability of the banking system's normal operation and commercial banking businessAs subordinated debt can not be guaranteed, a long time, be paid in advance a, so the bondholders have more incentives to the implementation of market discipline on banks issuing bonds than any other secondary stakeholders (mainly shareholders, depositors and the banks ). By the end of December 2003, the first of China's commercial banks subordinated debt is issued. China's secondary bond market have been greatly developed. On the one hand the sub-issuance of bonds is to improve the bank's capital adequacy ratio;on the other hand it play function of the importance of its market constraints.Market constraints are very important finance proposition with important theoretical significance. With research in learning at home and abroad, theory and empirical study are carried out based on the reality of the commercial banks. In theory of demonstrated secondary bond market, there is a direct and indirect conditions. In empirical research on the secondary bond market, the effectiveness of its influencing factors were studied.Full-text consists of eight chapters, the first chapter of the introduction introduces the main theme, the significance of their innovations as well as literature review. Chapter II introduces banking market theory of constraints, market constraint definitions are introduced with emphasis on the banking market and restraint mechanisms.Chapter III introduces theoretical analysis of the effectiveness of market discipline from the bank stakeholders. Deposit growth model and deposit interest rate model are used to the theoretical effectiveness as weill as equity market constraints.Chapter IV introduces effectiveness of the theoretical analysis and related constraints of subordinated debt. These analysis are principal-agent theory, incentive compatibility theory, corporate governance structure theory and the theory of constraints the direct and indirect market theory of constraints. Chapter V carried out a detailed introduction of subordinated bonds including the background, the characteristics of distribution and distribution of the purpose.Chapter VI is mainly for empirical testing and evaluation of effectiveness of secondary bond market. Econometric model and distribution model are analysed to show risk premium.Chapter VII is of the major study of the impact of secondary bond market constraints barriers. These barriers includes government guarantee, imperfect information disclosure system, China's banking corporate governance issues, the mutual inter-bank subordinated debt issues and the secondary bond market holding its own liquidity problems.Chapter VIII is of the foreign bank subordinated debt market discipline of practice. In this chapter, two countries of sub-debt policy is introduced as well as its practice of providing a reference for our country. Policy recommendations to improve our secondary bond market constraints function are forworded.This study concluded as follows:First, through the bank market discipline stakeholder analysis of the effectiveness of the theoretical model, depositors, shareholders will act on banks to implement risk management market restriction. But the non-market-oriented interest rates on deposits, the Government's deposit guarantee insurance behavior, equity market seriously hampered the effectiveness of non-market constraints fulfilling its functions.Secondly, through direct marketing on the secondary bond constraint theory analysis, we get, when the bank's assets and liabilities at a certain level of security within the borders, the subordinated debt can play the role of market discipline on banks. Through secondary bonds directly theoretical analysis of market discipline, subordinated debt trading and distribution of information has revealed the function of bank risk through subordinated bonds issued by other banks .Thirdly, China's bank subordinated debt market discipline effectiveness of the empirical test is carried out. Following conclusion is got the: the existence of subordinated bonds as a whole can really bind the bank risk-taking behavior, but this binding effect is limited.Fourth, China's banking industry prevails in the implicit government guarantee of bank creditors, the implicit guarantee of the subordinated debt. Bondholders significantly weakened market discipline on banks to implement the initiative.