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Will legislated early intervention prevent the next banking crisis?

  • Joe Peek
  • Eric S. Rosengren

A key provision of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) 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 legislation 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. Relative to actions taken by supervisors, PCA provisions would not have imposed more severe restrictions on banks, intervened earlier, or intervened in problem banks that would otherwise have been missed.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 96-5.

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Date of creation: 1996
Date of revision:
Publication status: Published in Southern Economic Journal (July 1997): 268-80.
Handle: RePEc:fip:fedbwp:96-5
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  1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
  2. 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.
  3. 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.
  4. Joe Peek & Eric S. Rosengren, 1995. "Banks and the availability of small business loans," Working Papers 95-1, Federal Reserve Bank of Boston.
  5. David S. Jones & Kathleen Kuester King, 1992. "The implementation of prompt corrective action," Proceedings 349, Federal Reserve Bank of Chicago.
  6. 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.
  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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