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Banking from Riches to Rags: Ignoring the Supervisory Red Flags and Thwarting Prompt Corrective Action

In: Financial Institutions and Markets

Author

Listed:
  • Gillian G. H. Garcia

Abstract

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 was enacted 19 years ago. In one of its major provisions—prompt corrective action (PCA)—Congress mandated that supervisors place a series of increasingly severe restrictions on the activities of a troubled bank or thrift if it did not correct its weaknesses but continued instead to deteriorate. Congress hoped that supervisors would correct weaknesses as soon as they perceived them in order to reverse an institution’s path to destruction. On those—it was hoped rare—occasions when such correction failed, a nonviable institution was to be closed and resolved once its tangible equity capital declined to, or below, 2 percent of its assets. Congress intended that closing an institution promptly before it became insolvent would prevent serious losses to the deposit insurance funds.

Suggested Citation

  • Gillian G. H. Garcia, 2010. "Banking from Riches to Rags: Ignoring the Supervisory Red Flags and Thwarting Prompt Corrective Action," Palgrave Macmillan Books, in: Robert R. Bliss & George G. Kaufman (ed.), Financial Institutions and Markets, chapter 1, pages 3-35, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-11736-5_1
    DOI: 10.1057/9780230117365_1
    as

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