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Regulatory forbearance: A reconsideration

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  • William Gissy

Abstract

Critics of regulatory forebearance argue that the resulting moral hazard produces higher costs when a depository institution is ultimately resolved. This paper derives a formula for the minimal survival rate necessary to make forbearance the least cost policy. When applied to the empirical results produced by critics of the policy, it appears that the forbearance practice of the 1980s was a cost saver to taxpayers. Copyright International Atlantic Economic Society 2000

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  • William Gissy, 2000. "Regulatory forbearance: A reconsideration," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(4), pages 722-729, November.
    • Handle: RePEc:kap:iaecre:v:6:y:2000:i:4:p:722-729:10.1007/bf02295382
    DOI: 10.1007/BF02295382
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    1. 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.
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    3. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
    4. Nagarajan, S. & Sealey, C. W., 1995. "Forbearance, deposit insurance pricing, and incentive compatible bank regulation," Journal of Banking & Finance, Elsevier, vol. 19(6), pages 1109-1130, September.
    5. Lai, Van Son, 1996. "The Effects of Variations in Laxity (or Strictness) of Closure Rules on the Valuation of Deposit Insurance," The Financial Review, Eastern Finance Association, vol. 31(4), pages 721-746, November.
    6. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
    7. 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.
    8. Edward J. Kane, 1993. "Taxpayer Loss Exposure in the Bank Insurance Fund," Challenge, Taylor & Francis Journals, vol. 36(2), pages 43-49, March.
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