A primer on market discipline and governance of financial institutions for those in a state of shocked disbelief

Joseph P. Hughes, Loretta J. Mester

Research output: Chapter in Book/Report/Conference proceedingChapter

2 Scopus citations

Abstract

Self-regulation encouraged by market discipline constitutes a key component of Basel II's third pillar. But high-risk investment strategies may maximize the expected value of some banks. In these cases, does market discipline encourage risk-taking that undermines bank stability in economic downturns? This chapter reviews the literature on corporate control in banking. It reviews the techniques for assessing bank performance, interaction between regulation and the federal safety net with market discipline on risk-taking incentives and stability, and sources of market discipline, including ownership structure, capital market discipline, product market competition, labor market competition, boards of directors, and compensation..

Original languageEnglish (US)
Title of host publicationEfficiency and Productivity Growth
Subtitle of host publicationModelling in the Financial Services Industry
Publisherwiley
Pages19-47
Number of pages29
ISBN (Electronic)9781118541531
ISBN (Print)9781119967521
DOIs
StatePublished - May 6 2013

All Science Journal Classification (ASJC) codes

  • Mathematics(all)

Keywords

  • Banking
  • Corporate governance
  • Financial crisis
  • Market discipline

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