ABSTRACT
The stability of the financial system is a long-term challenge for governments, regulators and academics. The 2007–2009 financial crisis proved stability’s importance and highlighted the weaknesses of the financial regulatory system around the world which was not able to avoid the failures and losses generated by the turbulence in the banking industry. Regulators, policy makers and academics learnt many lessons from this period and have attempted to fix the identified weaknesses. Market discipline mechanisms work via the prospect of failure and financial losses to minimize risk-taking, by which market participants discipline banks for their risk-taking behaviour. The market disciplining effect has been broadly identified by many studies and also by substantial evidence concerning market participants’ reactions. The nature of the disclosure content as a base for adequate, accurate and timely disclosures depends on the level of transparency, which is connected to the enhancement of market discipline.
