What does market discipline mean under Basel framework? Explain its purpose

Market Discipline is related to the Pillar-3 of the Basel Framework. Under the Basel Framework, market discipline means creating a more transparent and disciplined financial market through the disclosure of timely, accurate, and relevant financial and risk-related information by banks.

Purposes of Market Discipline

1. To establish a transparent and disciplined financial market.

2. To provide timely, accurate, and relevant information to stakeholders.

3. To help market participants assess a bank’s exposure to various risks.

4. To enable easy comparison among banks operating in the same market.

5. To disclose information regarding capital adequacy and risk management practices.

6. To help stakeholders evaluate whether a bank has sufficient capital to absorb probable losses.

7. To enhance transparency in the banking and financial system.

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