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Market Discipline of Banks’ Riskiness: A Study of Selected Issues

  • Franco Bruni
  • Francesco Paternò
Chapter
Part of the Financial and Monetary Policy Studies book series (FMPS, volume 30)

Abstract

Market discipline “means that markets provide signals that lead borrowers to behave in a manner consistent with their solvency” (Lane, 1993, p. 55). It is a crucial element in “private sector solutions” to the problem of financial fragility. A different category of solutions are “regulatory solutions.” But the two categories are deeply connected, and market discipline towards financial safety cannot be separated from regulation. It is true that, to some extent, market discipline can replace government supervision and regulation. But, in the authors’ view, the main influence of market forces is to complement the efforts of supervisors and regulators (Gilbert, 1990, p. 3; Lane, 1993, p. 63). An adequate regulatory setting is needed for market disciplining mechanisms to be effective.

Keywords

Monetary Policy Risky Asset Limited Liability Deposit Insurance Capital Ratio 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 1995

Authors and Affiliations

  • Franco Bruni
    • 1
  • Francesco Paternò
    • 2
  1. 1.“Paolo Baffi” Centre for Monetary and Financial EconomicsUniversità BocconiMilanoItaly
  2. 2.“Paolo Baffi” Centre for Monetary and Financial EconomicsUniversità BocconiMilanoItaly

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