Can The Unsophisticated Market Provide Discipline?
The authors question the widespread belief that market discipline on banks cannot be effective in less developed financial environments. There is no systematic tendency for low-income countries to lack the prerequisites for market discipline. Offs...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/08/5062235/can-unsophisticated-market-provide-discipline http://hdl.handle.net/10986/14166 |
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okr-10986-141662021-04-23T14:03:21Z Can The Unsophisticated Market Provide Discipline? Caprio, Gerard Honohan, Patrick ACCOUNTING ACQUISITION COSTS ASSET PRICES AUDITING AUDITORS BANK FAILURE BANK HOLDING COMPANIES BANK REGULATION BANK RISK BANK RUN BANK SUPERVISION BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CHECKING COAL COVERAGE DEBT DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVELOPING COUNTRY CONTEXT EMPIRICAL EVIDENCE EQUILIBRIUM EQUITY MARKETS FEDERAL RESERVE SYSTEM FINANCIAL INTERMEDIARIES FINANCIAL SECTOR DEVELOPMENT FINANCIAL SYSTEMS FINANCIAL VOLATILITY FOREIGN BANKS FRAUD FUTURE VALUE GOVERNMENT BANKS INCOME INFLATION INFORMATION ACQUISITION INSOLVENCY INSURANCE FUNDS INSURANCE SYSTEM INSURED DEPOSITS INTEREST DIFFERENTIALS INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LIQUIDITY LOOTING MARGINAL COST MARKET BEHAVIOR MARKET DISCIPLINE MARKET FORCES MARKET PRICES MATURITIES POLICY ENVIRONMENT POLITICAL ECONOMY PORTFOLIOS PREMIUMS PRICE THEORY PROBABILITY OF DEFAULT PROFITABILITY RATING AGENCIES RECAPITALIZATION RISK OF DEFAULT SECURITIES SHAREHOLDERS SHAREHOLDING SMALL BANKS STATE OWNERSHIP STOCKHOLDERS SUBORDINATED DEBT SUBSIDIARIES TRADING TRANSPARENCY VULNERABILITY MARKETS MARKET DISCIPLINE BANKING COMMUNITY BANKS INDEPENDENT BANKS INFORMATION INFRASTRUCTURE INTERNATIONALIZATION INTERNATIONAL ECONOMY GLOBAL MARKETS PUBLIC SECTOR INSTITUTIONS The authors question the widespread belief that market discipline on banks cannot be effective in less developed financial environments. There is no systematic tendency for low-income countries to lack the prerequisites for market discipline. Offsetting factors to the weaker market and formal information infrastructures are (1) the less complex character of banking business in low-income countries; (2) the growing internationalization of these markets through the presence of foreign banks, and through international trading of the debt and equity of locally-controlled non-government banks; and (3) the smaller size of the business and financial community. However, continuing dominance by public sector banks in some countries limits the likely development of market monitoring, which is clearly a cause for concern, given the disappointing record of governments around the world as monitors of their self-owned banks. Countries should build on this potential for market discipline by limiting the role of explicit deposit guarantees, reducing state ownership of banks where it is prevalent, and not putting all their eggs in the supervisory basket. Greater disclosure, for example, of how risk taking is rewarded and how rating agencies earn their fees would support the development of better market monitoring. Enhancing market discipline (pillar three) is much more likely to be of use in most developing countries than addressing the refinements of the risk-weighting system of Basel II's first pillar. 2013-06-25T14:47:27Z 2013-06-25T14:47:27Z 2004-08 http://documents.worldbank.org/curated/en/2004/08/5062235/can-unsophisticated-market-provide-discipline http://hdl.handle.net/10986/14166 English en_US Policy Research Working Paper;No.3364 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ACQUISITION COSTS ASSET PRICES AUDITING AUDITORS BANK FAILURE BANK HOLDING COMPANIES BANK REGULATION BANK RISK BANK RUN BANK SUPERVISION BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CHECKING COAL COVERAGE DEBT DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVELOPING COUNTRY CONTEXT EMPIRICAL EVIDENCE EQUILIBRIUM EQUITY MARKETS FEDERAL RESERVE SYSTEM FINANCIAL INTERMEDIARIES FINANCIAL SECTOR DEVELOPMENT FINANCIAL SYSTEMS FINANCIAL VOLATILITY FOREIGN BANKS FRAUD FUTURE VALUE GOVERNMENT BANKS INCOME INFLATION INFORMATION ACQUISITION INSOLVENCY INSURANCE FUNDS INSURANCE SYSTEM INSURED DEPOSITS INTEREST DIFFERENTIALS INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LIQUIDITY LOOTING MARGINAL COST MARKET BEHAVIOR MARKET DISCIPLINE MARKET FORCES MARKET PRICES MATURITIES POLICY ENVIRONMENT POLITICAL ECONOMY PORTFOLIOS PREMIUMS PRICE THEORY PROBABILITY OF DEFAULT PROFITABILITY RATING AGENCIES RECAPITALIZATION RISK OF DEFAULT SECURITIES SHAREHOLDERS SHAREHOLDING SMALL BANKS STATE OWNERSHIP STOCKHOLDERS SUBORDINATED DEBT SUBSIDIARIES TRADING TRANSPARENCY VULNERABILITY MARKETS MARKET DISCIPLINE BANKING COMMUNITY BANKS INDEPENDENT BANKS INFORMATION INFRASTRUCTURE INTERNATIONALIZATION INTERNATIONAL ECONOMY GLOBAL MARKETS PUBLIC SECTOR INSTITUTIONS |
| spellingShingle |
ACCOUNTING ACQUISITION COSTS ASSET PRICES AUDITING AUDITORS BANK FAILURE BANK HOLDING COMPANIES BANK REGULATION BANK RISK BANK RUN BANK SUPERVISION BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS CAPITAL ADEQUACY CAPITAL REQUIREMENTS CHECKING COAL COVERAGE DEBT DEFAULT RISK DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVELOPING COUNTRY CONTEXT EMPIRICAL EVIDENCE EQUILIBRIUM EQUITY MARKETS FEDERAL RESERVE SYSTEM FINANCIAL INTERMEDIARIES FINANCIAL SECTOR DEVELOPMENT FINANCIAL SYSTEMS FINANCIAL VOLATILITY FOREIGN BANKS FRAUD FUTURE VALUE GOVERNMENT BANKS INCOME INFLATION INFORMATION ACQUISITION INSOLVENCY INSURANCE FUNDS INSURANCE SYSTEM INSURED DEPOSITS INTEREST DIFFERENTIALS INTEREST RATES INTERNATIONAL BANKS LENDER OF LAST RESORT LIQUIDITY LOOTING MARGINAL COST MARKET BEHAVIOR MARKET DISCIPLINE MARKET FORCES MARKET PRICES MATURITIES POLICY ENVIRONMENT POLITICAL ECONOMY PORTFOLIOS PREMIUMS PRICE THEORY PROBABILITY OF DEFAULT PROFITABILITY RATING AGENCIES RECAPITALIZATION RISK OF DEFAULT SECURITIES SHAREHOLDERS SHAREHOLDING SMALL BANKS STATE OWNERSHIP STOCKHOLDERS SUBORDINATED DEBT SUBSIDIARIES TRADING TRANSPARENCY VULNERABILITY MARKETS MARKET DISCIPLINE BANKING COMMUNITY BANKS INDEPENDENT BANKS INFORMATION INFRASTRUCTURE INTERNATIONALIZATION INTERNATIONAL ECONOMY GLOBAL MARKETS PUBLIC SECTOR INSTITUTIONS Caprio, Gerard Honohan, Patrick Can The Unsophisticated Market Provide Discipline? |
| relation |
Policy Research Working Paper;No.3364 |
| description |
The authors question the widespread
belief that market discipline on banks cannot be effective
in less developed financial environments. There is no
systematic tendency for low-income countries to lack the
prerequisites for market discipline. Offsetting factors to
the weaker market and formal information infrastructures are
(1) the less complex character of banking business in
low-income countries; (2) the growing internationalization
of these markets through the presence of foreign banks, and
through international trading of the debt and equity of
locally-controlled non-government banks; and (3) the smaller
size of the business and financial community. However,
continuing dominance by public sector banks in some
countries limits the likely development of market
monitoring, which is clearly a cause for concern, given the
disappointing record of governments around the world as
monitors of their self-owned banks. Countries should build
on this potential for market discipline by limiting the role
of explicit deposit guarantees, reducing state ownership of
banks where it is prevalent, and not putting all their eggs
in the supervisory basket. Greater disclosure, for example,
of how risk taking is rewarded and how rating agencies earn
their fees would support the development of better market
monitoring. Enhancing market discipline (pillar three) is
much more likely to be of use in most developing countries
than addressing the refinements of the risk-weighting system
of Basel II's first pillar. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Caprio, Gerard Honohan, Patrick |
| author_facet |
Caprio, Gerard Honohan, Patrick |
| author_sort |
Caprio, Gerard |
| title |
Can The Unsophisticated Market Provide Discipline? |
| title_short |
Can The Unsophisticated Market Provide Discipline? |
| title_full |
Can The Unsophisticated Market Provide Discipline? |
| title_fullStr |
Can The Unsophisticated Market Provide Discipline? |
| title_full_unstemmed |
Can The Unsophisticated Market Provide Discipline? |
| title_sort |
can the unsophisticated market provide discipline? |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/08/5062235/can-unsophisticated-market-provide-discipline http://hdl.handle.net/10986/14166 |
| _version_ |
1764430522697646080 |