FDICIA after Five Years

George J. Benston and George G. Kaufman

Journal of Economic Perspectives, 1997, vol. 11, issue 3, 139-158

Abstract: At year-end 1991, Congress enacted fundamental deposit insurance reform for banks and thrifts--the FDIC Improvement Act. This reform followed the failure of more than 2,000 depository institutions in the 1980s. Many failed because the incentive incompatibility of the structure of federal government-provided deposit insurance encouraged moral hazard behavior by banks and poor agent behavior by regulators. Insurance was put on a more incentive compatible basis, providing for a graduated series of sanctions mimicking market discipline that first may and then must be applied by the regulators on floundering banks. This article reviews these changes and evaluates early results.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 1997
Note: DOI: 10.1257/jep.11.3.139
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Citations: View citations in EconPapers (72)

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