The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA, ), passed during the savings and loan crisis in the United States, strengthened the power of the

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cr ...

. It allowed the FDIC to borrow directly from the Treasury department and mandated that the FDIC resolve failed banks using the least costly method available. It also ordered the FDIC to assess insurance premiums according to risk and created new

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...

requirements.

Prompt Corrective Action

Title I, § 131(a), ''Prompt Corrective Action'', mandates progressive penalties against banks that exhibit progressively deteriorating capital ratios. At the lower extreme, a critically undercapitalized

(FDIC)-regulated institution (i.e., one with a ratio of total capital / assets below 2%) is required to be taken into

receivership In law, receivership is a situation in which an institution or enterprise is held by a receiver—a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights"—especially in c ...

by the FDIC in order to minimize long-term losses to the FDIC. The motivation behind the law is to provide incentives for banks to address problems while they are still small enough to be manageable. Spong (2000, pages 90–95) summarizes the details (http://www.kansascityfed.org/publicat/bankingregulation/RegsBook2000.pdf). In an interview on

Bill Moyers Journal ''Bill Moyers Journal'' was an American television current affairs program that covered an array of current affairs and human issues, including economics, history, literature, religion, philosophy, science, and most frequently politics. Bill Moy ...

broadcast April 3, 2009, former bank regulator

William K. Black William Kurt Black (born September 6, 1951) is an American lawyer, academic, author, and a former bank regulator. Black's expertise is in white-collar crime, public finance, regulation, and other topics in law and economics. He developed the conce ...

asserted that federal officials were ignoring the PCA law requiring them to put

insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...

banks into receivership. The PCA law applies only to institutions insured by the FDIC and therefore would not affect, for better or worse, companies such as AIG.

References

External links

US Code Title 12, 1831o
Prompt Corrective Action * William K. Black comments on PC

102nd United States Congress 1991 in law United States federal banking legislation Federal Deposit Insurance Corporation Savings and loan crisis 1991 in American politics 1991 in economics 1991 in the United States {{US-fed-statute-stub

Prompt Corrective Action

See also

References

External links