Market Discipline in Bank Regulation
Panacea or Paradox?
By Fiona C. Maclachlan
This article appeared in the Fall 2001 issue of The Independent Review
Central bankers often speak of the three pillars supporting the safety and soundness of the banking system: regulation, supervision, and, increasingly, market discipline. Paradoxically, many recent proposals intended to improve market discipline would in fact undermine it by giving rise to counterproductive regulatory discretion.