Studying On Market Discipline Of Subordinated Debt On Chinese Commercial Banks

World economy history reflects that finance development can promote economy growth greatly. Nowadays financial industry has already been the core of modern economy system. Commercial banks play an important role in financial system and have significant externalities. How to insure safety, soundness and efficiency of banks is an unavoidable task for supervisory authorities all over the world. Deregulation and technological advances have further complicated bank supervision and regulation since 1970s. In order to decrease the possibility of financial crisis and ease the shock on economy, market discipline has been put on the agenda again. BIS pointed out that market discipline is prerequisite of effective official supervision in Core Principle on Effective Banking Regulation. Moreover, Basle Capital Accord II lines out market discipline, minimum capital constraint and official supervision as the three pillars of new capital framework to ensure banks safety and soundness. Theoretically, SND has more significant market discipline effect than other financial instruments due to its characteristics of unsecured position, juniority and longer maturity. Therefore, since the mid-1980s a growing number of observers, both within and outside the bank regulatory agencies, have proposed using SND to strengthen market discipline on banking organizations.From the end of 2003, when Industry Bank issued the first SND, to Dec 31, 2007, there were 22 Chinese commercial banks offering 45 SNDs, which amount 230.11 billion Yuan. up to date, the subordinated debt market has taken its shape. Then, how on earth is market discipline of our banks issuing SNDs? What are the influencing factors of market discipline on Chinese commercial banks? What measurements should we take to enhance its effect? Clarifying these problems is beneficial for us to deepen cognition of SND market, strengthen market discipline and optimize supervision resources.This thesis begins with the theoretical analysis of the mechanism of SND market discipline, then discusses Chinese SND market's features from multi aspects with SND products. By means of empirical study on influencing factors of SND interest spread and issuance decision-making, we try to provide evidence for the SND market discipline on Chinese banking industry, based on which suggestion will be put forward finally. This paper will divide into 5 chapters and proceed as follows. Chapter 1: Introduction. This part presents background, problem-posing, literature review, study content, method and technique route, possible innovation and defects.Chapter 2: Market discipline of SND on commercial banks. At first connotations of SND and market discipline will be introduced respectively, then we will point out the meanings of Market discipline of SND, finally we will analyze its mechanism and prerequisites.Chapter 3: Practice of our commercial banks issuing SNDs. This part begins with the background and general situation of SND issuance in China, and then discusses the SND market status from SND issuing mode, investors, size, interest pattern, bid price, maturity and option, which we also compare with international advanced banks.Chapter 4: Empirical study on Chinese SND market discipline. In this part, we apply interest spread model and issuance decision-making model to explore the influencing factors of market discipline, especially investigate the relationship between risk indicators and interest spread, on that basis we provide evidence for SND market discipline on Chinese banking industry. In addition, by estimating respectively, we research whether Chinese state-owned commercial banks are protected by implicit government guarantee, which may restrict market discipline effect.Chapter 5: Obstacle and countermeasure of SND market discipline on Chinese banking industry. This part reveals the main obstacle of our SND market discipline in consideration of Chinese macro financial condition and features of SND issuance. Based on previous analysis, we will put forward some suggestion in order to improve Chinese commercial banks SND issuance and promote the effect of SND market discipline.