Taking note of the deposit insurance fund: a plan for the FDIC to issue capital notes
In the United States the risk that a financial breakdown could lead to a taxpayer bailout of the deposit insurance fund has been cited to justify current regulatory controls on what activities may be affiliated with banks. Despite some regulatory changes in the 1990s to protect taxpayers from future debacles, however, widespread failures could still expose taxpayers to losses. ; This article proposes a new way to monitor the deposit insurance fund by having the FDIC issue capital notes. Because the interest paid on the notes would be suspended if the fund required a loan from the Treasury or eliminated if taxpayer funds were contributed to offset deposit insurance losses, noteholders would have more incentive to clearly signal the condition of the insurance fund. This signal would help regulators, taxpayers, and their congressional representatives monitor the health of the fund and would change the incentive structure facing FDIC directors. The cost of the notes would be minimal in part because the proceeds would be used to reduce banks' existing deposit insurance obligations.
Volume (Year): (1997)
Issue (Month): Q 1 ()
|Contact details of provider:|| Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309|
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- 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.
- Kane, Edward J., 1995. "Three paradigms for the role of capitalization requirements in insured financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 431-459, June.
- Davies, Sally M. & McManus, Douglas A., 1991. "The effects of closure policies on bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 917-938, September.
- Berger, Allen N. & King, Kathleen Kuester & O'Brien, James M., 1991. "The limitations of market value accounting and a more realistic alternative," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 753-783, September.
- Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992.
" Is Fairly Priced Deposit Insurance Possible?,"
Journal of Finance,
American Finance Association, vol. 47(1), pages 227-45, March.
- Rebecca Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996. "Banks with something to lose: the disciplinary role of franchise value," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 1-14.
- Kane, Edward J. & Min-Teh Yu, 1995. "Measuring the true profile of taxpayer losses in the S & L insurance mess," Journal of Banking & Finance, Elsevier, vol. 19(8), pages 1459-1477, November.
- Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
- Sally M. Davies & Douglas A. McManus, 1991. "The effects of closure policies on bank risk-taking," Finance and Economics Discussion Series 158, Board of Governors of the Federal Reserve System (U.S.).
- Mark J. Flannery, 1991.
"Debt maturity and the deadweight cost of leverage: optimally financing banking firms,"
Federal Reserve Bank of San Francisco, issue Nov.
- Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-31, March.
- Kane, Edward J. & Kaufman, George G., 1993.
"Incentive conflict in deposit-institution regulation: evidence from Australia,"
Pacific-Basin Finance Journal,
Elsevier, vol. 1(1), pages 13-29, March.
- Edward J. Kane & George G. Kaufman, 1992. "Incentive conflict in deposit-institution regulation: evidence from Australia," Working Paper Series, Issues in Financial Regulation 92-5, Federal Reserve Bank of Chicago.
- George G. Kaufman, 1996. "Bank Failures, Systemic Risk, and Bank Regulation," Cato Journal, Cato Journal, Cato Institute, vol. 16(1), pages 17-45, Spring/Su.
- Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1995. "Lessons from financial crisis: the Japanese case," Proceedings 450, Federal Reserve Bank of Chicago.
- Bert Ely, 1994. "Financial Innovation and Deposit Insurance: The 100 Percent Cross-Guarantee Concept," Cato Journal, Cato Journal, Cato Institute, vol. 13(3), pages 413-445, Winter.
- George G. Kaufman, 1996. "Bank failures, systemic risk, and bank regulation," Working Paper Series, Issues in Financial Regulation WP-96-1, Federal Reserve Bank of Chicago.
- R. Alton Gilbert, 1990. "Market discipline of bank risk: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-18.
- Calomiris, Charles W., 1990. "Is Deposit Insurance Necessary? A Historical Perspective," The Journal of Economic History, Cambridge University Press, vol. 50(02), pages 283-295, June.
- Edward J. Kane, 1988. "Changing incentives facing financial-services regulators," Proceedings, Federal Reserve Bank of Cleveland, pages 265-279.
When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:1997:i:q1:p:14-30:n:v.82no.1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector)
If references are entirely missing, you can add them using this form.