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Will Legislated Early Intervention Prevent the Next Banking Crisis?

  • Joe Peek

    ()

    (Boston College)

  • Eric S. Rosengren

    (Federal Reserve Bank of Boston)

A key provision of the Federal Deposit Insurance Corporation Improvement Act of 1991 was prompt corrective action (PCA). PCA emphasized early intervention by bank supervisors and was intended to limit forbearance by making supervisory intervention more timely and less discretionary. However, PCA, as implemented, appears to have been oversold. Had PCA been in place during the recent banking crisis in New England, it would have had little, if any, effect. Since it imposes an essentially nonbinding constraint on bank supervisors, PCA is not likely to play a major role in preventing the next banking crisis.

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File URL: http://fmwww.bc.edu/EC-P/wp359.pdf
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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 359.

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Length: 23 pages
Date of creation: Dec 1996
Date of revision:
Handle: RePEc:boc:bocoec:359
Contact details of provider: Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Phone: 617-552-3670
Fax: +1-617-552-2308
Web page: http://fmwww.bc.edu/EC/
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  1. R. Alton Gilbert, 1991. "Supervision of undercapitalized banks: is there a case for change?," Review, Federal Reserve Bank of St. Louis, issue May, pages 16-30.
  2. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
  3. Joe Peek & Eric S. Rosengren, 1995. "Banks and the availability of small business loans," Working Papers 95-1, Federal Reserve Bank of Boston.
  4. Joe Peek & Eric S. Rosengren, 1996. "The use of capital ratios to trigger intervention in problem banks: too little, too late," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 49-58.
  5. David S. Jones & Kathleen Kuester King, 1992. "The implementation of prompt corrective action," Proceedings 349, Federal Reserve Bank of Chicago.
  6. 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.
  7. R. Alton Gilbert, 1991. "Supervision of undercapitalized banks: is there a case for change?," Proceedings 324, Federal Reserve Bank of Chicago.
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