Preconditions for a Successful Implementation of Supervisors' Prompt Corrective Action: Is There a Case for a Banking Standard in the European Union?

Journal of Banking Regulation, Vol. 7, March/April 2006

FRB Atlanta Working Paper No. 2006-27

47 Pages Posted: 9 Feb 2007

See all articles by Maria Nieto

Maria Nieto

Banco de España

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

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.

Keywords: bank, supervision, European Union, PCA

JEL Classification: G28, K23, F20

Suggested Citation

Nieto, Maria J. and Wall, Larry D., Preconditions for a Successful Implementation of Supervisors' Prompt Corrective Action: Is There a Case for a Banking Standard in the European Union?. Journal of Banking Regulation, Vol. 7, March/April 2006; FRB Atlanta Working Paper No. 2006-27. Available at SSRN: https://ssrn.com/abstract=958793

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Larry D. Wall (Contact Author)

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8937 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.frbatlanta.org/econ_rd/bios/wall.htm

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