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FDICIA after five years: a review and evaluation

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Author Info
George J. Benston
George G. Kaufman
Abstract

At yearend 1991, Congress enacted fundamental deposit insurance reform for banks and thrifts in the FDIC Improvement Act (FDICIA). This reform followed the failure of more than 2,000 depository institutions in the 1980s. Many of these failed because of the incentive incompatibility of the structure of federal government-provided deposit insurance, which encouraged moral hazard behavior by banks and poor agent behavior by regulators. Insurance was put on a more incentive compatible basis by providing for a graduated series of sanctions that mimic market discipline and first may and then must be applied by the regulators on floundering the banks. This article reviews these changes and evaluates the early results.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series, Issues in Financial Regulation with number WP-97-1.

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Date of creation: 1997
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Handle: RePEc:fip:fedhfi:wp-97-1

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Keywords: Federal Deposit Insurance Corporation Improvement Act of 1991

References listed on IDEAS
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.:

  1. Miller, Geoffrey P., 1996. "Is deposit insurance inevitable? Lessons from Argentina," International Review of Law and Economics, Elsevier, vol. 16(2), pages 211-232, June. [Downloadable!] (restricted)
  2. Joe Peek & Eric S. Rosengren, 1996. "Will legislated early intervention prevent the next banking crisis?," Working Papers 96-5, Federal Reserve Bank of Boston. [Downloadable!]
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  3. George J. Benston & George G. Kaufman, 1988. "Risk and solvency regulation of depository institutions: past policies and current options," Staff Memoranda 88-1, Federal Reserve Bank of Chicago.
  4. 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. [Downloadable!] (restricted)
  5. Joe Peek & Eric S. 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. [Downloadable!]
  6. Kane, Edward J. & Yu, Min-Teh, 1996. "Opportunity cost of capital forbearance during the final years of the FSLIC mess," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(3), pages 271-290. [Downloadable!] (restricted)
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(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.)

  1. John R. Walter, 2004. "Closing troubled banks : how the process works," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 51-68. [Downloadable!]
  2. Robert E. Litan, 1997. "Institutions and policies for maintaining financial stability," Proceedings, Federal Reserve Bank of Kansas City, pages 257-297. [Downloadable!]
  3. Jenny Corbett & Janet Mitchell, 2000. "Banking Crises and Bank Rescues: the Role of Reputation," Econometric Society World Congress 2000 Contributed Papers 0676, Econometric Society. [Downloadable!]
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