Reforming Financial Institutions and Markets in the United States, 1994 Towards Rebuilding a Safe and More Efficient System

This volume focuses on constructing a safer and more efficient financial system based on the lessons learned from the financial debacles of the 1980s. The first essay discusses the economic and political forces both propelling and opposing widespread banking reform. The next two essays describe the intellectual history of the deposit insurance reform provisions of FDICIA, arguably the most important banking legislation since the Banking Act of 1933, discuss the weaknesses and strengths of these provisions and make recommendations for improving the effectiveness of the reforms. Theoretical and empirical evidence is then summarized and evaluated with respect to the costs and benefits of regulators granting forbearance to economically insolvent institutions. An analysis is given of the whys and hows of privatizing federal deposit insurance in case the reforms in FDICIA prove ineffective. An examination follows of the causes and consequences of the Bank of Credit and Commerce International (BCCI) debacle of the early 1990s and the implications for the supervision of foreign banks in the United States and elsewhere. Next the broader issue is discussed of whether U.S. financial markets affect the behavior of U.S. corporate managers, particularly whether they encourage managerial myopia. Without concluding whether such myopia exists, policy options are examined that would make financial markets more conducive to longer-term planning, including permitting banks to invest in corporate equity and thus monitor firms as owners as well as creditors.

1 The Intellectual History of the Federal Deposit Insurance Corporation Improvement Act of 1991.- 2 Banking Reform: Economic Propellants, Political Impediments.- 3 Taxpayer Loss Exposure in the Bank Insurance Fund.- 4 The Role of Forbearance and Its Costs in Handling Troubled and Failed Depository Institutions.- 5 Long-Run Benefits in Financial Regulation from Increased Accountability and Privatization.- 6 The Application of Private Insurance to Banking Oversight.- 7 Improving the FDIC Improvement Act: What Was Done and What Still Needs to Be Done to Fix the Deposit Insurance Problem.- 8 The Collapse of BCCI: Implications for the Supervision of International Banks.- 9 Financial Markets and Managerial Myopia: Making America More Competitive.- About the Authors.