8 External Governance: Market Discipline
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Mr. Matthew I. Saal https://isni.org/isni/0000000404811396 International Monetary Fund

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Mr. Carl-Johan Lindgren
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Ms. G. G. Garcia https://isni.org/isni/0000000404811396 International Monetary Fund

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Abstract

When internal governance fails to ensure the soundness of banks, private and public sector creditors of banks must themselves strive to ensure that their interests are not jeopardized. Creditors can reinforce bank’s incentives to operate safely and soundly by providing oversight, exerting discipline on banks’ activities, and driving poorly managed or unsound banks out of the market. Such market discipline helps prevent isolated problems at individual banks from contaminating others and building into systemic unsoundness.

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