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Preconditions for a successful implementation of supervisors' prompt corrective action: Is there a case for a banking standard in the European Union?

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  • María J. Nieto
  • Larry D. Wall

Abstract

Over the past years, several countries around the world have adopted a system of prudential prompt corrective action (PCA). The European Union countries are being encouraged to adopt PCA by policy analysts who explicitly call for its adoption. To date, most of the discussion on PCA has focused on its overall merits. This paper focuses on the preconditions needed for the adoption of an effective PCA. These preconditions include conceptual elements such as a prudential supervisory focus on minimizing deposit insurance losses and mandating supervisory action as capital declines. These preconditions also include institutional aspects such as greater supervisory independence and authority, more effective resolution mechanisms, and better methods of measuring capital.

Suggested Citation

  • María J. Nieto & Larry D. Wall, 2006. "Preconditions for a successful implementation of supervisors' prompt corrective action: Is there a case for a banking standard in the European Union?," FRB Atlanta Working Paper 2006-27, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2006-27
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    Cited by:

    1. Schoenmaker, Dirk & Gros, Daniel, 2012. "A European Deposit Insurance and Resolution Fund," CEPS Papers 6918, Centre for European Policy Studies.
    2. Gillian G.H.Garcia & Rosa M. Lastra & Maria J. Nieto, 2009. "Bankruptcy and reorganisation procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," FMG Special Papers sp186, Financial Markets Group.
    3. Hertig Gerard & Lee Ruben & McCahery Joseph A., 2010. "Empowering the ECB to Supervise Banks: A Choice-Based Approach," European Company and Financial Law Review, De Gruyter, pages 171-215.
    4. repec:ces:ifodic:v:6:y:2008:i:3:p:14567250 is not listed on IDEAS
    5. David G. Mayes, 2011. "Early Intervention and Prompt Corrective Action in Europe," Chapters,in: The Financial Crisis and the Regulation of Finance, chapter 10 Edward Elgar Publishing.
    6. Edward Kane, 2007. "Connecting National Safety Nets: The Dialectics of the Basel II Contracting Process," Atlantic Economic Journal, Springer;International Atlantic Economic Society, pages 399-409.
    7. Schoenmaker, Dirk & Gros, Daniel, 2012. "A European Deposit Insurance and Resolution Fund - An Update," CEPS Papers 7276, Centre for European Policy Studies.

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