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This article examines the existence of a bank-lending channel in Association of Southeast Asian Nations (ASEAN) using a sample of 328 banks from 2009 to 2015. The findings confirm that a bank-lending channel is effective. In particular, we find that consumer loans and commercial loans are sensitive to changes in monetary policy, but mortgage and corporate loans are not. We also find that commercial banks are vulnerable to monetary policy changes, but both investment and Islamic banks are not. On the contrary, special purpose banks are able to overcome the effect of monetary policy tightening by supplying more loans. The effectiveness of a bank-lending channel in ASEAN also holds when we control for the differences in governance structure of the countries. Policymakers need to take these into consideration in designing an effective monetary policy.

The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed.