Market Discipline: Is it Fact or Fiction?
26 Pages Posted: 6 Oct 2003
Date Written: August 27, 2003
The Bank for International Settlements (BIS) is an international organization that fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Basel Committee on Banking Supervision, which is part of the BIS, issued a proposal for a New Basel Capital Accord that is to be implemented by participating banks throughout the world in 2006. The New Capital Accord is based, in part, on market discipline. This article examines what market discipline means, the requirements for market discipline, and its effectiveness. The conclusion is that market discipline is a good idea, but it has not been effective in the recent past.
Keywords: Basel Accord, Bank supervision, Market discipline
JEL Classification: G28, G21
Suggested Citation: Suggested Citation