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. Securities And Exchange Commission ...

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

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

    1. The U.S. Securities and Exchange Commission's (SEC) requirement ...
  4. Capital Requirement

    The standardized requirements in place for banks and other depository ...
  5. Basel Accord

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

    A set of international banking regulations put forth by the Basel ...
Related Articles
  1. The Flow Of Company Information
    Investing Basics

    The Flow Of Company Information

  2. Common Clues Of Financial Statement ...
    Retirement

    Common Clues Of Financial Statement ...

  3. How Basel 1 Affected Banks
    Personal Finance

    How Basel 1 Affected Banks

  4. Basel II Accord To Guard Against Financial ...
    Insurance

    Basel II Accord To Guard Against Financial ...

comments powered by Disqus
Hot Definitions
  1. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  2. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  3. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  4. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  5. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
  6. Direct Participation Program - DPP

    A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. ...
Trading Center