A wave of depository institution failures and dramatic losses to deposit insurance funds occurred in the 1980s and continued into the 1990s. In response, the Congress passed a series of bank regulatory acts intended to address the problems that led to the crisis and prevent its recurrence. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was the capstone of this transformation of banking legislation, with two key provisions designed to reduce the cost of troubled banks to the deposit insurance fund: early closure of failing institutions, and early supervisory intervention in problem banks, referred to as prompt corrective action.> This article considers whether the capital ratio thresholds that trigger prompt corrective action intervention provide sufficient lead time for successful intervention at troubled banks. The study finds that because prompt corrective action is based on a lagging indicator of a bank's financial health, it is likely to trigger intervention in problem banks only after they have been identified by examiners, who rely on far more information that the capital ratio. The authors propose two simple measures to improve the current triggers for prompt corrective action.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)