IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v64y1997i1p268-280.html
   My bibliography  Save this article

Will Legislated Early Intervention Prevent the Next Banking Crisis?

Author

Listed:
  • Joe Peek
  • Eric S. Rosengren

Abstract

A key provision of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was prompt corrective action (PCA). PCA emphasized early intervention by bank supervisors and was intended to limit forbearance by making supervisory intervention more timely and less discretionary. However, PCA legislation appears to have been oversold. Had PCA been in place during the recent banking crisis in New England, it would have had little, if any, effect. Relative to actions taken by supervisors, PCA provisions would not have imposed more severe restrictions on banks, intervened earlier, or intervened in problem banks that would otherwise have been missed.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Joe Peek & Eric S. Rosengren, 1997. "Will Legislated Early Intervention Prevent the Next Banking Crisis?," Southern Economic Journal, John Wiley & Sons, vol. 64(1), pages 268-280, July.
    • Handle: RePEc:wly:soecon:v:64:y:1997:i:1:p:268-280
    DOI: 10.1002/j.2325-8012.1997.tb00019.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/j.2325-8012.1997.tb00019.x
    Download Restriction: no
    File URL: https://libkey.io/10.1002/j.2325-8012.1997.tb00019.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
    2. R. Alton Gilbert, 1991. "Supervision of undercapitalized banks: is there a case for change?," Review, Federal Reserve Bank of St. Louis, issue May, pages 16-30.
    3. David S. Jones & Kathleen Kuester King, 1992. "The implementation of prompt corrective action," Proceedings 349, Federal Reserve Bank of Chicago.
    4. Joe Peek & Eric Rosengren, 1996. "The use of capital ratios to trigger intervention in problem banks: too little, too late," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 49-58.
    5. Joe Peek & Eric Rosengren, 1995. "Banks and the availability of small business loans," Working Papers 95-1, Federal Reserve Bank of Boston.
    6. Jones, David S. & King, Kathleen Kuester, 1995. "The implementation of prompt corrective action: An assessment," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 491-510, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. George J. Benston & George G. Kaufman, 1997. "FDICIA after five years: a review and evaluation," Working Paper Series, Issues in Financial Regulation WP-97-01, Federal Reserve Bank of Chicago.
    2. R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2006. "Can feedback from the jumbo CD market improve bank surveillance?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 92(Spr), pages 135-175.
    3. Joe Peek & Eric Rosengren, 1997. "Derivatives Activity at Troubled Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 287-302, October.
    4. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q II), pages 2-20.
    5. David G. Mayes, 2008. "Avoiding the Next Crisis," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(4), pages 44-50, December.
    6. Rosalind L. Bennett & Mark D. Vaughan & Timothy J. Yeager, 2005. "Should the FDIC worry about the FHLB? The impact of Federal Home Loan Bank advances on the Bank Insurance Fund," Working Paper 05-05, Federal Reserve Bank of Richmond.
    7. David G. Mayes, 2011. "Early Intervention and Prompt Corrective Action in Europe," Chapters, in: Christopher J. Green & Eric J. Pentecost & Tom Weyman-Jones (ed.), The Financial Crisis and the Regulation of Finance, chapter 10, Edward Elgar Publishing.
    8. David G. Mayes, 2009. "Banking Crisis Resolution Policy - Lessons from Recent Experience - which elements are needed for robust and efficient crisis resolution?," CESifo Working Paper Series 2823, CESifo.
    9. Richard Dale & Franco Bruni & Christian de Boissieu, 2000. "Strengthening Financial Infrastructure - Deposit Insurance and Lending of Last Resort," SUERF Studies, SUERF - The European Money and Finance Forum, number 7 edited by Morten Balling, May.
    10. John R. Hall & Thomas B. King & Andrew P. Meyer & Mark D. Vaughan, 2002. "Did FDICIA enhance market discipline on community banks? a look at evidence from the jumbo-CD market," Supervisory Policy Analysis Working Papers 2002-04, Federal Reserve Bank of St. Louis.
    11. George J. Benston & George G. Kaufman, 1997. "FDICIA after Five Years," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 139-158, Summer.
    12. Richard W. Kopcke, 2000. "Deposit insurance, capital requirements, and financial stability," Working Papers 00-3, Federal Reserve Bank of Boston.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joe Peek & Eric S. Rosengren, 1996. "Bank Regulatory Agreements and Real Estate Lending," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 55-73, March.
    2. Aggarwal, Raj & Jacques, Kevin T., 2001. "The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1139-1160, June.
    3. Nakashima, Kiyotaka & Ogawa, Toshiaki, 2020. "The Impacts of Strengthening Regulatory Surveillance on Bank Behavior: A Dynamic Analysis from Incomplete to Complete Enforcement of Capital Regulation in Microprudential Policy," MPRA Paper 99938, University Library of Munich, Germany.
    4. Allen Berger & Sally Davies, 1998. "The Information Content of Bank Examinations," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(2), pages 117-144, October.
    5. Joe Peek & Eric Rosengren, 1997. "Derivatives Activity at Troubled Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 287-302, October.
    6. Decamps, Jean-Paul & Rochet, Jean-Charles & Roger, Benoit, 2004. "The three pillars of Basel II: optimizing the mix," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 132-155, April.
    7. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q II), pages 2-20.
    8. Loveland, Robert, 2016. "How prompt was regulatory corrective action during the financial crisis?," Journal of Financial Stability, Elsevier, vol. 25(C), pages 16-36.
    9. Dahl, Drew & Spivey, Michael F., 1995. "Prompt corrective action and bank efforts to recover from undercapitalization," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 225-243, May.
    10. Andrew Kuritzkes & Til Schuermann & Scott Weiner, 2002. "Deposit Insurance and Risk Management of the U.S. Banking System: How Much? How Safe? Who Pays?," Center for Financial Institutions Working Papers 02-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
    12. Gilbert, R. Alton & Vaughan, Mark D., 2001. "Do depositors care about enforcement actions?," Journal of Economics and Business, Elsevier, vol. 53(2-3), pages 283-311.
    13. James Cash Acrey & Wayne Y. Lee & Timothy J. Yeager, 2019. "Can Federal Home Loan Banks effectively self-regulate lending to influential banks?," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(2), pages 197-210, June.
    14. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    15. George J. Benston & George G. Kaufman, 1997. "FDICIA after five years: a review and evaluation," Working Paper Series, Issues in Financial Regulation WP-97-01, Federal Reserve Bank of Chicago.
    16. Chernykh, Lucy & Cole, Rebel A., 2015. "How should we measure bank capital adequacy for triggering Prompt Corrective Action? A (simple) proposal," Journal of Financial Stability, Elsevier, vol. 20(C), pages 131-143.
    17. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    18. Joe Peek & Eric Rosengren, 1995. "Small business credit availability: how important is size of lender?," Working Papers 95-5, Federal Reserve Bank of Boston.
    19. Kanas, Angelos, 2013. "Bank dividends, risk, and regulatory regimes," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 1-10.
    20. Geoffrey M. B. Tootell, 1996. "Can studies of application denials and mortgage defaults uncover taste-based discrimination?," Working Papers 96-10, Federal Reserve Bank of Boston.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:64:y:1997:i:1:p:268-280. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.