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

36 Pages Posted: 27 Feb 2007

See all articles by Maria Nieto

Maria Nieto

Banco de España

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

Date Written: February 26, 2007

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 EU? (February 26, 2007). Banco de España Research Paper No. WP-0702. Available at SSRN: https://ssrn.com/abstract=965365 or http://dx.doi.org/10.2139/ssrn.965365

Maria J. Nieto (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Larry D. Wall

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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