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U.S. Deposit Insurance Reform

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  • THOMAS F. CARGILL
  • THOMAS MAYER

Abstract

Congress, late in 1991, enacted a banking reform measure that (i) authorizes $70 billion of additional FDIC funding, (ii) enhances bank regulation and supervision, and (Hi) adopts a “trip wire” system for increasingly severe regulation based on a bank's capital. Congress rejected a number of key elements of the Treasury proposal submitted early in 1991, such as interstate banking and expanded bank powers. The Congressional action does not end the debate over banking reform. In due time, other attempts likely will be made to restructure the banking system along the lines of the Treasury proposal. The Treasury proposal's positive points failed to offset its fundamental problems. The Congressional action, though not subject to the Treasury proposal's problems, falls short of complete deposit insurance reform. Both proposals fail to recognize that regulatory oversight is a poor substitute for market discipline in the current financial environment. This paper reviews problems with the financial reform process and failure of the Treasury proposal to recognize these problems. It also reviews alternative approaches to deposit insurance reform.

Suggested Citation

  • Thomas F. Cargill & Thomas Mayer, 1992. "U.S. Deposit Insurance Reform," Contemporary Economic Policy, Western Economic Association International, vol. 10(3), pages 95-103, July.
  • Handle: RePEc:bla:coecpo:v:10:y:1992:i:3:p:95-103
    DOI: 10.1111/j.1465-7287.1992.tb00239.x
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    1. Kane, Edward J, 1981. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation," Journal of Finance, American Finance Association, vol. 36(2), pages 355-367, May.
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    6. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856.
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    Cited by:

    1. Robert A. Taggart, Jr., 1982. "Effects of Regulation on Utility Financing: Theory and Evidence," NBER Working Papers 0866, National Bureau of Economic Research, Inc.
    2. Edward Kane, 1997. "Ethical Foundations of Financial Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(1), pages 51-74, August.
    3. Walter A. Varvel & John R. Walter, 1976. "FDIC policy toward bank failures," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 3-12.
    4. Soon-Jae Lee & Michael L. Smith, "undated". "Property-Casualty Insurance Guaranty Funds And Insurer Vulnerability To Misfortune," Research in Financial Economics 9616, Ohio State University.
    5. Catherine England, 1994. "Regulatory Restructuring: Resolving the Fed's Conflicting Roles," Cato Journal, Cato Journal, Cato Institute, vol. 13(3), pages 367-385, Winter.
    6. Cornett, Marcia Millon & Davidson, Wallace III & Rangan, Nanda, 1996. "Deregulation in investment banking: Industry concentration following Rule 415," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 85-113, January.
    7. Yair E. Orgler & Robert A. Taggart, Jr., 1981. "Implications of Corporate Capital Structure Theory for Banking Institutions," NBER Working Papers 0737, National Bureau of Economic Research, Inc.

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