Market discipline curbs risky banking behavior, reduces threat of insolvency
The article looks at how banks take risks and if market discipline can stop them from taking too many risks. The researchers studied data from 729 banks in 32 countries from 1993 to 2000. They found that when banks know they won't fail, they take more risks. But when market discipline is strong, banks are less likely to fail. This means that market discipline helps prevent banks from going bankrupt.
