No Room for Weak Links in the Chain of Deposit Insurance Reform

Edward Kane

No 2317, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Unrecognized and deferred losses at insured deposit institutions currently impair the capacity of the nation's principal deposit insurers (the FDIC and FSLIC) both to discipline failing institutions and to discipline or take over insolvent ones. These agencies' accrued but unreported losses far exceed their explicit financial resources. Moreover, their backlog of unresolved problem cases far exceeds the workload that their existing staffs can handle. What holds the deposit-institution system together is financial-market participants' so-far-unshakable faith that politicians and bureaucrats cannot afford to let the FDIC and FSLIC renege on the obligations that they and their predecessors have permitted these agencies to assume. Underlying this belief is a conjectural economic assessment of the strength and constancy of incentives that direct elected politicians to bail out politically sensitive enterprises. This paper addresses three tasks: (1) to clarify the defects in the information, monitoring, regulatory-response, and incentive sub-systems of federal deposit insurance that, by subsidizing institutional risk-taking, led so many deposit institutions and their insurers into economic insolvency; (2) to identify a generic mix of reforms that could in principle put the system right again; and (3) to explain how far proposals for reform that hold a place on the active legislative and regulatory agenda fall short of this ideal.

Date: 1987-07
Note: ME
References: View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Journal of Financial Services Research, Vol. 1, No. 1, September 1987, pp. 77-111.

Downloads: (external link)
http://www.nber.org/papers/w2317.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2317

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2317

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().