Is There Market Discipline for New Zealand Non-Bank Financial Institutions?

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.

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A Primer on Market Discipline and Governance of Financial Institutions for Those in a State of Shocked Disbelief

SSRN Electronic Journal ◽

10.2139/ssrn.2079617 ◽

2012 ◽

Author(s):

Joseph P. Hughes ◽

Loretta J. Mester

Keyword(s):

Financial Institutions ◽

Market Discipline

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Three Enforcement Mechanisms

Why Not Default? ◽

10.23943/princeton/9780691180106.003.0005 ◽

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.

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Market Discipline for Financial Institutions and Markets for Information

Research Handbook on International Banking and Governance ◽

10.4337/9781849806107.00024 ◽

2013 ◽

Cited By ~ 3

Author(s):

Apanard P. Prabha ◽

Clas Wihlborg ◽

Thomas D. Willett

Keyword(s):

Financial Institutions ◽

Market Discipline

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Covered bonds and bank failure management in New Zealand

Policy Quarterly ◽

10.26686/pq.v8i4.4429 ◽

2012 ◽

Vol 8 (4) ◽

Cited By ~ 1

Author(s):

Geoff Bertram ◽

David Tripe

Keyword(s):

New Zealand ◽

Financial Crisis ◽

Financial Institutions ◽

Global Financial Crisis ◽

Bank Failure ◽

Policy Environment ◽

Development Finance ◽

Financial Crisis Of 2008 ◽

The Global Financial Crisis

The global financial crisis of 2008 has highlighted the question of where the costs fall when banks (or other financial institutions) fail. The issue is a real one. Failures do happen, and have become more common in the deregulated policy environment that developed worldwide from the 1980s. New Zealand has seen the collapse of the Development Finance Corporation in the 1980s; the near-failure of the Bank of New Zealand in 1990 (after a previous rescue in 1988, a further $640 million government bailout was needed in 1990 (Cardow et al., 2011)); and the failure of a string of finance companies culminating with that of South Canterbury Finance (which has left taxpayers carrying well over $1 billion of assets on which recoveries are questionable).

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