Abstract
The primary goal of enhancing banking system transparency by introducing additional disclosure requirements suggested by Basel II is to provide market participants with additional incentives to monitor their banks. This article attempts to discover the statistically significant relationship between quantitative market discipline and banking system transparency using cross-country data from 1990 to 2003. We use the Nier index, as well as an index constructed using World Bank ‘Bank Regulation and Supervision’ data, to measure banking system transparency. We found no statistically significant influence of banking system transparency on market discipline. Our result implies that measures designed to increase transparency not accompanied by requirements related to information availability and/or interpretability may not be effective in enhancing market discipline.
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Acknowledgements
I am grateful to Rocco Huang for providing the data for banking system transparency index, to Nikolay Schugal for his advice related to the econometrics and to all the participants of the Center for Institutional Studies seminars, as well as of the Spring Meeting of Young Economists 2009 and ISNIE 2010 for comments on earlier versions of this article.
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The study was implemented in the framework of the Basic Research Program of the Higher School of Economics in 2010.
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Semenova, M. Market discipline and banking system transparency: Do we need more information?. J Bank Regul 13, 241–248 (2012). https://doi.org/10.1057/jbr.2011.21
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DOI: https://doi.org/10.1057/jbr.2011.21