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Journal of Economic Perspectives: Vol. 11 No. 3 (Summer 1997)
JEP Volume. 11, Issue 3 | 
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FDICIA after Five Years
Article Citation
Benston, George J., and
George G. Kaufman. 1997. "FDICIA after Five Years."
Journal of Economic Perspectives,
11(3): 139-158.
DOI: 10.1257/jep.11.3.139
DOI: 10.1257/jep.11.3.139
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.
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Authors
Benston, George J. (Emory U)
Kaufman, George G. (Loyola U and Federal Reserve Bank of Chicago)
Kaufman, George G. (Loyola U and Federal Reserve Bank of Chicago)
JEL Classifications
G28: Financial Institutions and Services: Government Policy and Regulation
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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