Will Legislated Early Intervention Prevent the Next Banking Crisis?
Federal Reserve Banks - Federal Reserve Bank of Boston
Eric S. Rosengren
Federal Reserve Bank of Boston - Supervision and Regulation
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 mplemented, 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.
JEL Classification: G21Accepted Paper Series
Date posted: November 1, 1999
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