Market Discipline

AAA

DEFINITION of 'Market Discipline'

The onus on the banks, financial institutions and sovereigns to conduct business while considering the risks to their stakeholders. Market discipline is a market-based promotion of the transparency and disclosure of the risks associated with a business or entity. It works in concert with regulatory systems to increase the safety and soundness of the market

INVESTOPEDIA EXPLAINS 'Market Discipline'

The risks associated with partial ownership in a company can decrease the likelihood of involvement in the market. Market discipline increases the information available to the public by encouraging the release of timely information detailing a company's assets, liabilities and general financial information. This reduces the uncertainty and promote the function of the market as an exchange between lenders and borrowers.

For example, the capital requirements for a bank might be to keep 1% in reserves. Market discipline, on the other hand, encourages banks to keep a higher amount to reduce their liquidity risks and increase the confidence of their depositors.

RELATED TERMS
  1. Basel I

    A set of international banking regulations put forth by the Basel ...
  2. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  3. Basel Committee On Bank Supervision

    A committee established by the central bank governors of the ...
  4. Full Disclosure

    1. The U.S. Securities and Exchange Commission's (SEC) requirement ...
  5. Basel Accord

    A set of agreements set by the Basel Committee on Bank Supervision ...
  6. Capital Requirement

    The standardized requirements in place for banks and other depository ...
Related Articles
  1. Investing Basics

    The Flow Of Company Information

    Learn how to gather all the pieces before you start to put together your puzzle.
  2. Retirement

    Common Clues Of Financial Statement Manipulation

    Search for the "bloody" fingerprints in accounting crimes.
  3. Insurance

    Basel II Accord To Guard Against Financial Shocks

    Problems with the original accord became evident during the subprime crisis in 2007.
  4. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  5. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.
  6. Fundamental Analysis

    How do economists and psychologists calculate diminishing marginal utility differently?

    Find out why disagreements about the validity of the law of diminishing marginal utility usually boil down to arguments about definitions.
  7. Fundamental Analysis

    What does the law of diminishing marginal utility explain?

    Learn about some of the important economic insights that can be derived from applications of the law of diminishing marginal utility.
  8. Trading Strategies

    How can retirees protect their wealth in a bear market?

    Look at some helpful hints about how to protect your retirement nest egg when the stock market is underperforming or the economy is in recession.
  9. Fundamental Analysis

    What is the affect of the invisible hand on consumers?

    Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade in an exchange economy.
  10. Economics

    How does the invisible hand phenomenon affect investment markets?

    Read about how the invisible hand of the market coordinates investment markets and provides social benefit and why its effects are distorted along the way.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center