Implementing FDICIA's mandatory closure rule

Under the prompt corrective action (PCA) provisions of the FDIC Improvement Act (FDICIA), there is a mandatory closure when an institution's tangible equity capital falls below 2% of its total assets. The number of critically undercapitalized banks and thrifts had fallen by 59% and 77% respecti...

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Bibliographic Details
Published in:Journal of banking & finance 1995-06, Vol.19 (3), p.723-725
Main Author: Garcia, Gillian
Format: Article
Language:English
Subjects:
Banking
Banking law
Banks
Capital requirements
Congressional oversight
Deposit insurance
FDIC Improvement Act 1991-US
FDICIA
Finance
Prompt corrective action
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Summary:Under the prompt corrective action (PCA) provisions of the FDIC Improvement Act (FDICIA), there is a mandatory closure when an institution's tangible equity capital falls below 2% of its total assets. The number of critically undercapitalized banks and thrifts had fallen by 59% and 77% respectively by the time the Act was passed in December 1991 and by over 90% when the Act was implemented a year later. Consequently, the expected deluge of closures did not occur. There are 5 possible reasons for the decrease in the number of under-capitalized banks: 1. the improved economy, 2. the threat of the Act, 3. the closing of failing banks by regulators, 4. the changed message on forbearance by Congress and the Administration, and 5. the improved ability to monitor compliance with legislation.
ISSN:0378-4266
1872-6372
DOI:10.1016/0378-4266(94)00153-T