Market Discipline for Financial Institutions and Markets for Information

2011 ◽  
Author(s):  
Apanard P. Angkinand Prabha ◽  
Clas Wihlborg ◽  
Thomas D. Willett
Keyword(s):  
Financial Institutions ◽  
Market Discipline

scholarly journals Market discipline and deposit insurance: evidence from some Middle Eastern banks

2008 ◽  
Vol 6 (1-2) ◽  
pp. 278-285 ◽  
Author(s):  
Ghassan Omet ◽  
Saif Ibrahim ◽  
Hadeel Yaseen
Keyword(s):  
Financial Institutions ◽  
Deposit Insurance ◽  
Middle Eastern ◽  
Banking Crises ◽  
Market Discipline ◽  
Financial Intermediaries ◽  
Basel Accord ◽  
Effective Governance ◽  
Time Period ◽  
Bank Disclosure

Financial intermediaries (banks) and market (stock markets) can play an important role in economic growth. They facilitate a more efficient mobilization of savings, spread risk, and provide liquidity. Given the high costs of banking crises, regulators have always sought the means that promote greater levels of prudence in the behaviour of banks. Indeed Pillar 3 of the Basel Accord relies on enhancing bank disclosure to strengthen market discipline. In other words, Basel II introduces mechanisms to ensure effective governance in financial institutions. The primary objectives of this research are to provide answers to two questions. First, do depositors discipline Jordanian, Kuwaiti, Omani, and Saudi banks? Second, the fact that the Kuwaiti and Saudi deposits are 100 percent insured explicitly and implicitly respectively, while the Jordanian and Omani deposits are insured up to $14,000 and $50,000 respectively, does this difference in the deposit insurance design have any bearing on market discipline. Based on a sample of listed Jordanian, Kuwaiti, Omani, and Saudi banks during the time period 1997 – 2006, the overall results clearly indicate the absence of market discipline in Kuwait, Oman, and Saudi Arabia. In other words, market discipline is at work only in Jordan.

Three Enforcement Mechanisms

2019 ◽  
pp. 68-82
Author(s):  
Jerome Roos
Keyword(s):  
Financial Institutions ◽  
Sovereign Debt ◽  
Market Discipline ◽  
International Financial Institutions ◽  
Short Term ◽  
Structural Power ◽  
Capitalist Economy ◽  
Credit Lines ◽  
Intermediary Role ◽  
Enforcement Mechanisms

The structural power of finance in sovereign debt crises is a product of the financial sector's position as the principal creator of credit-money within the capitalist economy, and it revolves around its capacity to withhold the short-term credit lines on which all states—as well as firms and households—depend for their reproduction. This chapter discusses the three enforcement mechanisms of debtor compliance through which the structural power of finance is hypothesized to operate, specifying in each case the precise conditions and countervailing forces bearing on their overall strength and effectiveness. These mechanisms are market discipline; the conditional emergency lending by creditor states and international financial institutions; and the intermediary role fulfilled by domestic political and financial elites inside the borrowing countries.

Stabilizing Large Financial Institutions with Contingent Capital Certificates

2016 ◽  
Vol 06 (02) ◽  
pp. 1650006 ◽  
Author(s):  
Mark J. Flannery
Keyword(s):  
Financial Institutions ◽  
Financial Institution ◽  
Market Value ◽  
Market Discipline ◽  
Capital Adequacy ◽  
Current Application ◽  
Contingent Capital ◽  
Equity Ratio ◽  
Poor Outcomes ◽  
Financial Firm

The 2008–2009 financial crisis clearly indicated that government regulators are reluctant to let a large financial institution fail. In order to minimize the transfer of future losses to taxpayers or to solvent banks, we need a system for assuring that large institutions continuously maintain sufficient capital. For a variety of reasons, supervisors find it difficult to require institutions to sell new shares after they have suffered losses. This paper describes and evaluates a proposed security that converts from debt to equity automatically when the issuer’s equity ratio falls too low. “Contingent capital certificates” (CCCs) can greatly reduce the probability that a large financial firm will suffer losses in excess of its common equity, and will provide market discipline by forcing shareholders to internalize more of their assets’ poor outcomes. The proposed reliance on equity’s market value to trigger conversion creates some problems, which must be compared to the shortcomings of our current application of capital adequacy standards.

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