Market Discipline and Banking System Transparency: Do We Need More Information?

Abstract

We make an attempt to discover the statistically significant relationship between market discipline and banking system transparency using the cross-country data (1990-2003). The dependent variables cover the quantitative and price-based disciplining. Measuring banking system transparency we use three groups of possible proxies: on the country, corporate and banking system levels. We found no statistically significant positive and stable influence of banking system transparency on market discipline. This result implies that measures aimed to increase transparency, not being accompanied with requirements related to information availability and/or interpretability, may be not efficient in reaching the goal of market discipline stimulation.

Keywords: Banks, Market Discipline, Transparency

JEL Classification: G21, O16