Abstract: How will the market discipline of creditors with different sources of bank liabilities change after the implementation of a deposit insurance system? Will depositors and non-depository creditors work together to enhance market discipline, or will they work in the opposite direction? Based on this question, this paper utilizes the panel data of 186 commercial banks from 2009 to 2020 to construct a double-difference model for the implementation of the deposit insurance system in China in 2015. It is found that after the implementation of the deposit insurance system, depositors strengthened the market discipline, while non-deposit creditors relaxed the market discipline driven by interests, which is contrary to depositors. The risk-differentiated rate pricing model of the deposit insurance system promotes bank disclosure and thus influences market discipline; the main motivation for creditors’ market discipline is to guard against risk and adjust returns by means of price discipline. In the structure of bank liabilities, the market discipline of long-term deposits, bond liabilities, and subordinated liabilities holders are more significantly affected by the deposit insurance system. There is no significant market constraint interaction between depositors and non-deposit creditors. In addition, external capital regulatory discipline reduce the enhancing effect of the deposit insurance system on depositors’ market discipline and compensate for the weakening of the deposit insurance system on non-deposit creditors’ market discipline. The effect of deposit insurance on market discipline follows the same trend as the effect on risk, suggesting that the risk-mitigating effect of market discipline is enhanced under the deposit insurance system.

Key words: deposit insurance system, depositors, non-deposit creditors, market discipline