---
entity_slug: bank_market_discipline
entity_type: Process
vsm_system: S3*
type_rationale: Bank Market Discipline is an ongoing regulatory activity involving
  the continuous application of market forces (note redemption threats, competition,
  consequences) that transforms and constrains bank behavior over time.
vsm_rationale: This process functions as an audit mechanism that monitors and ensures
  compliance with prudent banking practices through market-based inspection and enforcement
  rather than formal regulatory oversight.
classified_at: '2026-02-23T10:46:40.970777'
---

# Classification: Bank Market Discipline

## Entity Type

Process

## VSM System

S3*

## Type Rationale

Bank Market Discipline is an ongoing regulatory activity involving the continuous application of market forces (note redemption threats, competition, consequences) that transforms and constrains bank behavior over time.

## VSM Rationale

This process functions as an audit mechanism that monitors and ensures compliance with prudent banking practices through market-based inspection and enforcement rather than formal regulatory oversight.
