What is Market Discipline?
Market discipline refers to the obligation by banks and financial institutions to manage their stakeholders' risk in the course of their day-to-day operations.
How Does Market Discipline Work?
Banks and other financial institutions assume some level of risk with each loan they disburse. This risk is passed on to other borrowers and clients as well as stockholders.
Banks and financial companies are required to prepare publicly-available financial and operational documentation pursuant to federal regulations in order to ensure financial transparency and disclosure of information. In this way, market discipline discourages banks and financial companies from assuming excessive or dangerous levels of risk. Doing so might affect not only their ability to make loans, but also compromise the interests of existing stockholders and clients (checking account holders, depositors, and borrowers).
Why Does Market Discipline Matter?
Market discipline places constraints on banks' and financial companies' level of risk because such risk would be reflected in financial statements and may deter prospective clients and investors.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
For many decades, investors had a simple choice: stocks or mutual funds. If you lacked the time or expertise to pick stocks,...
Read More →
Two mild-mannered school teachers taught me everything I know about flipping houses -- and not in a good way. I met this couple in 2006. They were very nice people -- but extremely...
Read More →
The best credit card balance transfers can not only save you interest but can also help you pay off your debt faster. Although they aren’t the only solution to reduce balances, these balance...
Read More →
Inside a cramped office on East 42nd Street in New York City in 1954, three men sifted through financial...
Read More →
Have you ever dreamed of buying your favorite sports franchise? Well, I have. Of course it's a long shot, but my favorite NBA team, the New Orleans Hornets, is currently looking for...
Read More →
