Regulating Banks Through Market Discipline: A Survey of the Issues

18 Pages Posted: 2 Jan 2004

See all articles by Marc J. K. de Ceuster

Marc J. K. de Ceuster

University of Antwerp - Faculty of Applied Economics - City Campus

Nancy Masschelein

National Bank of Belgium - Department of International Cooperation and Financial Stability

Abstract

The interest in the application of market discipline to regulate the financial industry has boomed recently due to the proposed New Capital Accord. This paper reviews the potential role market discipline can play in financial regulation. We start with a discussion of the rationale for financial regulation and with a brief history of the current regulatory mechanisms. Next, a definition of market discipline as a regulatory mechanism is advanced. We evaluate the disciplining power various market participants have. Finally, we argue that more external risk management disclosure is a condition sine qua non in order to enable market discipline as a regulatory mechanism. In this respect, the Basle Committee has taken the right approach.

Suggested Citation

de Ceuster, Marc J. K. and Masschelein, Nancy, Regulating Banks Through Market Discipline: A Survey of the Issues. Journal of Economic Surveys, Vol. 17, pp. 749-766, December 2003. Available at SSRN: https://ssrn.com/abstract=467744

Marc J. K. De Ceuster (Contact Author)

University of Antwerp - Faculty of Applied Economics - City Campus ( email )

Office B-337
Prinsstraat 13
Antwerp, Antwerp 2000
Belgium
+ 32 3 220 41 24 (Phone)
+ 32 3 220 40 64 (Fax)

HOME PAGE: http://www.ua.ac.be/marc.deceuster

Nancy Masschelein

National Bank of Belgium - Department of International Cooperation and Financial Stability ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

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