Rethinking Market Discipline in Banking : Lessons from the Financial Crisis
The main objective of this paper is to rethink the use of market discipline for prudential purposes in light of lessons from the financial crisis. The paper develops the main building blocks of a market discipline framework, and argues for the need...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100303081544 http://hdl.handle.net/10986/3717 |
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okr-10986-3717 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTING ACCOUNTING RULES ACCOUNTING STANDARDS AGENCY PROBLEMS AMOUNT OF DEBT AMOUNT OF RISK ASYMMETRIC INFORMATION AUDITORS BALANCE SHEET BANK BEHAVIOR BANK EXPOSURES BANK FAILURE BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK LENDING BANK MANAGEMENT BANK POLICY BANK PROFITS BANK REGULATION BANK SECURITIES BANK SECURITY BANK SUPERVISORS BANKING CRISIS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BOARDS OF DIRECTORS BOND YIELD BONDS CAPITAL ACCORD CAPITAL MARKETS CAPITAL REQUIREMENTS CAPITAL STANDARDS CAPITAL STRUCTURE CDS CHECKS CLASS ACTION COMMERCIAL BANKS COMMON SHARES COMMON STOCK CONFLICTS OF INTEREST CONSOLIDATION CONTINGENCY PLANS CONTRACT ENFORCEMENT CONVERTIBLE DEBENTURES CORPORATE FINANCE CORPORATE GOVERNANCE COUPON COUPON RATE CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITORS DEBT INSTRUMENT DEBT ISSUANCE DEBT PRICE DEBT PRICES DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSITOR DEPOSITORS DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT BANK DISCLOSURE REQUIREMENTS DIVIDEND EFFICIENT MARKET EFFICIENT MARKETS EMERGING ECONOMIES EQUITIES EQUITY HOLDINGS EQUITY INDEX EQUITY MARKET EQUITY PRICES EXPOSURE EXTERNAL MARKET EXTERNALITIES FACE VALUE FAIR FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE SYSTEM FINANCIAL ACCOUNTING FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STRENGTH FINANCIAL SYSTEM FINANCIAL SYSTEMS GAMBLING GLOBAL BANKING GLOBALIZATION GOOD GOVERNANCE GOVERNANCE PRACTICES GOVERNMENT INTERVENTION GOVERNMENT SUPPORT HEDGE FUNDS HOSTILE TAKEOVERS HYBRID SECURITIES ILLIQUIDITY INDIVIDUAL MARKET INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURES INFORMATIONAL ASYMMETRIES INSTITUTIONAL ENVIRONMENTS INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS INVESTOR PROTECTION JUNK BOND LACK OF TRANSPARENCY LEGAL PROTECTION LENDER LEVEL OF RISK LEVY LIABILITY LIMITED LIABILITY LIQUID MARKETS LOAN MACROECONOMIC ENVIRONMENT MACROECONOMIC POLICIES MANDATES MARKET BENCHMARK MARKET BENCHMARKS MARKET DISCIPLINE MARKET INFORMATION MARKET PARTICIPANTS MARKET PLAYERS MARKET PRICES MARKET PRICING MARKET REGULATION MARKET RISK MARKET THEORY MATURITY MORAL HAZARD MORTGAGE NARROW BANKING POLICY RESPONSES POLITICAL CONSIDERATIONS PREFERENTIAL ACCESS PRICE BEHAVIOR PRICE INDEX PRICE MOVEMENTS PRICE SENSITIVITY PRIMARY MARKET PRINCIPAL-AGENT PROBLEMS PRIVATE BANK PRIVATE PROPERTY PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PRUDENTIAL REGULATION PRUDENTIAL STANDARDS PUBLIC POLICY RATING AGENCIES REGULATORS REGULATORY AUTHORITIES REGULATORY CAPITAL REGULATORY FRAMEWORKS REGULATORY REPORTS REGULATORY RESTRICTIONS REGULATORY STANDARDS RETAIL RETURN RISK ASSESSMENT PROCESSES RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK OF DEFAULT RISK PROFILE SAFETY NET SAFETY NETS SECONDARY MARKET SECURITIES SECURITY PRICES SHARE PRICE SHAREHOLDERS SHORT-TERM REPOS SHORT-TERM YIELD SOLVENCY SPREAD STATISTICAL ANALYSIS STOCK PRICE SUBORDINATED DEBT SUPERVISORY AUTHORITIES SYSTEMIC RISK SYSTEMIC RISKS TIER 1 CAPITAL TRADING TRANSPARENCY TREASURY TYPES OF INSTRUMENTS UNSECURED DEBT VOLATILITY WORKING CAPITAL |
| spellingShingle |
ACCOUNTING ACCOUNTING RULES ACCOUNTING STANDARDS AGENCY PROBLEMS AMOUNT OF DEBT AMOUNT OF RISK ASYMMETRIC INFORMATION AUDITORS BALANCE SHEET BANK BEHAVIOR BANK EXPOSURES BANK FAILURE BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK LENDING BANK MANAGEMENT BANK POLICY BANK PROFITS BANK REGULATION BANK SECURITIES BANK SECURITY BANK SUPERVISORS BANKING CRISIS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BOARDS OF DIRECTORS BOND YIELD BONDS CAPITAL ACCORD CAPITAL MARKETS CAPITAL REQUIREMENTS CAPITAL STANDARDS CAPITAL STRUCTURE CDS CHECKS CLASS ACTION COMMERCIAL BANKS COMMON SHARES COMMON STOCK CONFLICTS OF INTEREST CONSOLIDATION CONTINGENCY PLANS CONTRACT ENFORCEMENT CONVERTIBLE DEBENTURES CORPORATE FINANCE CORPORATE GOVERNANCE COUPON COUPON RATE CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITORS DEBT INSTRUMENT DEBT ISSUANCE DEBT PRICE DEBT PRICES DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSITOR DEPOSITORS DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT BANK DISCLOSURE REQUIREMENTS DIVIDEND EFFICIENT MARKET EFFICIENT MARKETS EMERGING ECONOMIES EQUITIES EQUITY HOLDINGS EQUITY INDEX EQUITY MARKET EQUITY PRICES EXPOSURE EXTERNAL MARKET EXTERNALITIES FACE VALUE FAIR FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE SYSTEM FINANCIAL ACCOUNTING FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STRENGTH FINANCIAL SYSTEM FINANCIAL SYSTEMS GAMBLING GLOBAL BANKING GLOBALIZATION GOOD GOVERNANCE GOVERNANCE PRACTICES GOVERNMENT INTERVENTION GOVERNMENT SUPPORT HEDGE FUNDS HOSTILE TAKEOVERS HYBRID SECURITIES ILLIQUIDITY INDIVIDUAL MARKET INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURES INFORMATIONAL ASYMMETRIES INSTITUTIONAL ENVIRONMENTS INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS INVESTOR PROTECTION JUNK BOND LACK OF TRANSPARENCY LEGAL PROTECTION LENDER LEVEL OF RISK LEVY LIABILITY LIMITED LIABILITY LIQUID MARKETS LOAN MACROECONOMIC ENVIRONMENT MACROECONOMIC POLICIES MANDATES MARKET BENCHMARK MARKET BENCHMARKS MARKET DISCIPLINE MARKET INFORMATION MARKET PARTICIPANTS MARKET PLAYERS MARKET PRICES MARKET PRICING MARKET REGULATION MARKET RISK MARKET THEORY MATURITY MORAL HAZARD MORTGAGE NARROW BANKING POLICY RESPONSES POLITICAL CONSIDERATIONS PREFERENTIAL ACCESS PRICE BEHAVIOR PRICE INDEX PRICE MOVEMENTS PRICE SENSITIVITY PRIMARY MARKET PRINCIPAL-AGENT PROBLEMS PRIVATE BANK PRIVATE PROPERTY PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PRUDENTIAL REGULATION PRUDENTIAL STANDARDS PUBLIC POLICY RATING AGENCIES REGULATORS REGULATORY AUTHORITIES REGULATORY CAPITAL REGULATORY FRAMEWORKS REGULATORY REPORTS REGULATORY RESTRICTIONS REGULATORY STANDARDS RETAIL RETURN RISK ASSESSMENT PROCESSES RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK OF DEFAULT RISK PROFILE SAFETY NET SAFETY NETS SECONDARY MARKET SECURITIES SECURITY PRICES SHARE PRICE SHAREHOLDERS SHORT-TERM REPOS SHORT-TERM YIELD SOLVENCY SPREAD STATISTICAL ANALYSIS STOCK PRICE SUBORDINATED DEBT SUPERVISORY AUTHORITIES SYSTEMIC RISK SYSTEMIC RISKS TIER 1 CAPITAL TRADING TRANSPARENCY TREASURY TYPES OF INSTRUMENTS UNSECURED DEBT VOLATILITY WORKING CAPITAL Stephanou, Constantinos Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5226 |
| description |
The main objective of this paper is to
rethink the use of market discipline for prudential purposes
in light of lessons from the financial crisis. The paper
develops the main building blocks of a market discipline
framework, and argues for the need to take an expansive view
of the concept. It also illustrates using actual bank case
studies from the United States its apparent failures in the
crisis, particularly the failure to prevent the buildup of
systemic, as opposed to idiosyncratic, risks. However, while
the role of market discipline in the design of
macro-prudential regulation appears to be largely
constrained, more can be done on the micro-prudential side
to promote clearer market signals of bank riskiness and to
encourage their use in the supervisory process. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Stephanou, Constantinos |
| author_facet |
Stephanou, Constantinos |
| author_sort |
Stephanou, Constantinos |
| title |
Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| title_short |
Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| title_full |
Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| title_fullStr |
Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| title_full_unstemmed |
Rethinking Market Discipline in Banking : Lessons from the Financial Crisis |
| title_sort |
rethinking market discipline in banking : lessons from the financial crisis |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100303081544 http://hdl.handle.net/10986/3717 |
| _version_ |
1764387970339569664 |
| spelling |
okr-10986-37172021-04-23T14:02:12Z Rethinking Market Discipline in Banking : Lessons from the Financial Crisis Stephanou, Constantinos ACCOUNTING ACCOUNTING RULES ACCOUNTING STANDARDS AGENCY PROBLEMS AMOUNT OF DEBT AMOUNT OF RISK ASYMMETRIC INFORMATION AUDITORS BALANCE SHEET BANK BEHAVIOR BANK EXPOSURES BANK FAILURE BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK LENDING BANK MANAGEMENT BANK POLICY BANK PROFITS BANK REGULATION BANK SECURITIES BANK SECURITY BANK SUPERVISORS BANKING CRISIS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BOARDS OF DIRECTORS BOND YIELD BONDS CAPITAL ACCORD CAPITAL MARKETS CAPITAL REQUIREMENTS CAPITAL STANDARDS CAPITAL STRUCTURE CDS CHECKS CLASS ACTION COMMERCIAL BANKS COMMON SHARES COMMON STOCK CONFLICTS OF INTEREST CONSOLIDATION CONTINGENCY PLANS CONTRACT ENFORCEMENT CONVERTIBLE DEBENTURES CORPORATE FINANCE CORPORATE GOVERNANCE COUPON COUPON RATE CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITORS DEBT INSTRUMENT DEBT ISSUANCE DEBT PRICE DEBT PRICES DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSITOR DEPOSITORS DEPOSITS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT BANK DISCLOSURE REQUIREMENTS DIVIDEND EFFICIENT MARKET EFFICIENT MARKETS EMERGING ECONOMIES EQUITIES EQUITY HOLDINGS EQUITY INDEX EQUITY MARKET EQUITY PRICES EXPOSURE EXTERNAL MARKET EXTERNALITIES FACE VALUE FAIR FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE SYSTEM FINANCIAL ACCOUNTING FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STRENGTH FINANCIAL SYSTEM FINANCIAL SYSTEMS GAMBLING GLOBAL BANKING GLOBALIZATION GOOD GOVERNANCE GOVERNANCE PRACTICES GOVERNMENT INTERVENTION GOVERNMENT SUPPORT HEDGE FUNDS HOSTILE TAKEOVERS HYBRID SECURITIES ILLIQUIDITY INDIVIDUAL MARKET INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURES INFORMATIONAL ASYMMETRIES INSTITUTIONAL ENVIRONMENTS INSTITUTIONAL INVESTORS INSTRUMENT INSURANCE INSURANCE COMPANIES INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS INVESTOR PROTECTION JUNK BOND LACK OF TRANSPARENCY LEGAL PROTECTION LENDER LEVEL OF RISK LEVY LIABILITY LIMITED LIABILITY LIQUID MARKETS LOAN MACROECONOMIC ENVIRONMENT MACROECONOMIC POLICIES MANDATES MARKET BENCHMARK MARKET BENCHMARKS MARKET DISCIPLINE MARKET INFORMATION MARKET PARTICIPANTS MARKET PLAYERS MARKET PRICES MARKET PRICING MARKET REGULATION MARKET RISK MARKET THEORY MATURITY MORAL HAZARD MORTGAGE NARROW BANKING POLICY RESPONSES POLITICAL CONSIDERATIONS PREFERENTIAL ACCESS PRICE BEHAVIOR PRICE INDEX PRICE MOVEMENTS PRICE SENSITIVITY PRIMARY MARKET PRINCIPAL-AGENT PROBLEMS PRIVATE BANK PRIVATE PROPERTY PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PRUDENTIAL REGULATION PRUDENTIAL STANDARDS PUBLIC POLICY RATING AGENCIES REGULATORS REGULATORY AUTHORITIES REGULATORY CAPITAL REGULATORY FRAMEWORKS REGULATORY REPORTS REGULATORY RESTRICTIONS REGULATORY STANDARDS RETAIL RETURN RISK ASSESSMENT PROCESSES RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK OF DEFAULT RISK PROFILE SAFETY NET SAFETY NETS SECONDARY MARKET SECURITIES SECURITY PRICES SHARE PRICE SHAREHOLDERS SHORT-TERM REPOS SHORT-TERM YIELD SOLVENCY SPREAD STATISTICAL ANALYSIS STOCK PRICE SUBORDINATED DEBT SUPERVISORY AUTHORITIES SYSTEMIC RISK SYSTEMIC RISKS TIER 1 CAPITAL TRADING TRANSPARENCY TREASURY TYPES OF INSTRUMENTS UNSECURED DEBT VOLATILITY WORKING CAPITAL The main objective of this paper is to rethink the use of market discipline for prudential purposes in light of lessons from the financial crisis. The paper develops the main building blocks of a market discipline framework, and argues for the need to take an expansive view of the concept. It also illustrates using actual bank case studies from the United States its apparent failures in the crisis, particularly the failure to prevent the buildup of systemic, as opposed to idiosyncratic, risks. However, while the role of market discipline in the design of macro-prudential regulation appears to be largely constrained, more can be done on the micro-prudential side to promote clearer market signals of bank riskiness and to encourage their use in the supervisory process. 2012-03-19T18:38:32Z 2012-03-19T18:38:32Z 2010-03-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100303081544 http://hdl.handle.net/10986/3717 English Policy Research working paper ; no. WPS 5226 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |