How prompt was regulatory corrective action during the financial crisis?

Loveland, Robert

doi:10.1016/j.jfs.2016.05.004

Cited by 13 publications

(9 citation statements)

References 38 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…10 A summary of the PCA provisions of the FDICIA can be found in Jones and King (1995). A recent summary of the PCA provisions that apply under the risk-weighted capital rules of Basel III can be found in Kupiec (2015); see also Government Accountability Office (2011, 2015) and Loveland (2016, table 2). 11 From 1994From -2006, the FDIC closed only 70 banks in total: an average of less than six per year. No banks were closed during 2005 or 2006. weak institutions and fewer closures (and relatively small costs to the FDIC 12 ), discussion of and attention to PCA receded.…”

Section: Background and Contextmentioning

confidence: 99%

When time is not on our side: The costs of regulatory forbearance in the closure of insolvent banks

Cole

White

2017

Journal of Banking & Finance

View full text Add to dashboard Cite

In this paper, we empirically estimate the costs of delay in the FDIC's closures of 433 commercial banks between 2007 and 2014 based upon a counterfactual closure regime. We find that the costs of delay could have been as high as $18.5 billion, or 37% of the FDIC's estimated costs of closure of $49.8 billion. We think that these findings call for a more aggressive stance by bank regulators with respect to the provisions for loan losses and write-downs of banks' nonperforming assets. More aggressive (and earlier) provisions and write-downs, or adoption of a capital ratio that penalizes nonperforming loans, would allow the concept of "prompt corrective action" (PCA) to play the role that it was meant to play in reducing FDIC losses from insolvent banks.

show abstract

Section: Background and Contextmentioning

confidence: 99%

When time is not on our side: The costs of regulatory forbearance in the closure of insolvent banks

Cole

White

2017

Journal of Banking & Finance

View full text Add to dashboard Cite

show abstract

“…10 A summary of the PCA provisions of the FDICIA can be found in Jones and King (1995). A recent summary of the PCA provisions that apply under the risk-weighted capital rules of Basel III can be found in Kupiec (2015); see also Government Accountability Office (2011,2015) and Loveland (2016, weak institutions and fewer closures (and relatively small costs to the FDIC 12 ), discussion of and attention to PCA receded.…”

Section: Background and Contextmentioning

confidence: 99%

“…Finally, in a recent study, Loveland (2016) uses share price data for publicly traded banks that eventually failed during 2008-2010 to show that for two years prior to closure these banks were systematically under-provisioning with respect to their impaired loans. These banks were thus over-stating their capital.…”

Section: Forbearancementioning

confidence: 99%

“…For the purposes of the current paper, we retain the spirit of our earlier "technical failure" formula but modify it so as to focus on the 2% PCA closure criterion. We follow Chernykh and Cole (2015) in offering two alternative measures that provide benchmarks that focus on the 2% PCA closure criterion: 20 17 See also Loveland (2016). 18 See also Government Accountability Office (2011,2015); Financial Stability Oversight Council (2011); and Kupiec (2015).…”

Section: Forbearance and The Cost Of Closurementioning

confidence: 99%

See 1 more Smart Citation

When Time is Not on Our Side: The Costs of Regulatory Forbearance in the Closure of Insolvent Banks

Cole

White

2015

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…The impact of regulatory restrictions on certain banking activities, such as branching, insurance, securities, real estate or owning and controlling non-financial firms, remains an important issue amongst bank regulators and practitioners. Recent literature reveals that improper use of bank regulations is the principal cause of excessive risk-taking for banks, which, in turn, made them vulnerable to the 2008-2009 global financial crisis (GFC) (OECD, 2010;Shehzad and Haan, 2015;Loveland, 2016;Li, 2019). Against this backdrop, Keeley (1990) identifies liberalisation of restrictions intensified the risk-taking incentives of banks by eroding their franchise value while Beck (2008) claims that more restrictions also intensify their risk-taking incentives [1].…”

Section: Introductionmentioning

confidence: 99%

Impact of activity restrictions on risk taking of banks: does competition matter during crisis?

Noman

Isa

Mia

et al. 2020

JFRC

View full text Add to dashboard Cite

Purpose This study aims to examine the impact of activity restrictions in shaping the risk-taking behaviour of banks through the channel of competition in different economic conditions. Design/methodology/approach The authors use a dynamic panel regression method, particularly a two-step system generalised method of moments to address the risk-taking persistence of banks and endogeneity of activity restrictions and competition with banks’ risk-taking using financial freedom and property rights as instrumental variables. Activity restrictions are computed by constructing an index based on the survey results of Barth et al. (2001, 2006, 2008 and 2013a). Competition is measured by the Panzar–Rosse H-statistic and risk-taking behaviour are measured by non-performing loan ratio and lnZ-score. In the investigation process, the authors control bank characteristics – size, efficiency, ownership and loan composition and macroeconomic factors – gross domestic product growth and inflation, and use 2,527 bank-year observations from 180 commercial banks of Association of the Southeast Asian Nations-five countries over the 1990–2014 period. Findings This study finds that activity restrictions exacerbate the risk-taking behaviour of the banks leading to changes in the channel of competition because of the “risk-shifting effect” of competition. The finding is robust by considering the financial crisis and alternative specifications. Research limitations/implications This study contributes to bank literature and policy formulation regarding the effect of activity restrictions on the risk-taking behaviour of banks, which is an issue of concern amongst bank regulators, policymakers and academics, especially in the aftermath of the 2008–2009 global financial crisis. Practical implications Understanding how the competition plays a role in the relationship between activity restrictions and the risk-taking of banks in different economic situations. Originality/value This study provides new insight into the bank literature by investigating the moderating role of competition on activity restrictions and the risk-taking behaviour of banks in a different economic environment.

show abstract

How prompt was regulatory corrective action during the financial crisis?

Cited by 13 publications

References 38 publications

When time is not on our side: The costs of regulatory forbearance in the closure of insolvent banks

When time is not on our side: The costs of regulatory forbearance in the closure of insolvent banks

When Time is Not on Our Side: The Costs of Regulatory Forbearance in the Closure of Insolvent Banks

Impact of activity restrictions on risk taking of banks: does competition matter during crisis?

Contact Info

Product

Resources

About