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Loss Sharing Rules for Bank Holding Companies: An Assessment of the Federal Reserve's Source‐of‐Strength Policy and the FDIC's Cross Guarantee Authority

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  • Christine M. Bradley
  • Kenneth D. Jones

Abstract

In this article, we critically examine two policies designed to protect the deposit insurance funds—the Federal Reserve Board's source‐of‐strength policy and the FDIC's cross‐guarantee authority. We discuss why each of the policies was adopted and how effective each has been in practice since its implementation. We then evaluate the future application and usefulness of the two policies in light of the structural changes that have resulted from industry consolidation and the financial modernization of the 1990s.

Suggested Citation

  • Christine M. Bradley & Kenneth D. Jones, 2008. "Loss Sharing Rules for Bank Holding Companies: An Assessment of the Federal Reserve's Source‐of‐Strength Policy and the FDIC's Cross Guarantee Authority," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 17(4), pages 249-286, November.
    • Handle: RePEc:wly:finmar:v:17:y:2008:i:4:p:249-286
    DOI: 10.1111/j.1468-0416.2008.00141.x
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    References listed on IDEAS

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    1. Susan Schmidt Bies, 2006. "Supervisory perspective on current bank capital, market risk, and loan product issues: a speech at the Bank Administration Institute Treasury Management Conference, Orlando, Florida, May 4, 2006," Speech 194, Board of Governors of the Federal Reserve System (U.S.).
    2. Adam B. Ashcraft, 2008. "Are Bank Holding Companies a Source of Strength to Their Banking Subsidiaries?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 273-294, March.
    3. Adam B. Ashcraft, 2005. "Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks," American Economic Review, American Economic Association, vol. 95(5), pages 1712-1730, December.
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