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FDICIA after Five Years

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

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.3.139
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    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 11 (1997)
    Issue (Month): 3 (Summer)
    Pages: 139-158

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    Handle: RePEc:aea:jecper:v:11:y:1997:i:3:p:139-58
    Note: DOI: 10.1257/jep.11.3.139
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    1. Kane, Edward J, 1989. "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 31-47, Fall.
    2. Lawrence J. White, 1989. "The reform of Federal Deposit Insurance," Proceedings 258, Federal Reserve Bank of Chicago.
    3. Joe Peek & Eric S. Rosengren, 1996. "Will Legislated Early Intervention Prevent the Next Banking Crisis?," Boston College Working Papers in Economics 359, Boston College Department of Economics.
    4. Jaffee, Dwight M, 1989. "Symposium on Federal Deposit Insurance for S&L Institutions," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 3-9, Fall.
    5. 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.
    6. 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.
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