English, Article edition: BANK CAPITAL FORBEARANCE AND PUBLIC POLICY GEORGE G. KAUFMAN

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Bookmark: http://trove.nla.gov.au/version/185568
Physical Description
  • article
Language
  • English

Edition details

Title
  • BANK CAPITAL FORBEARANCE AND PUBLIC POLICY
Author
  • GEORGE G. KAUFMAN
Physical Description
  • article
Notes
  • Recently, the bank regulatory agencies have adopted capital forbearance programs to permit some troubled agriculture and energy banks to operate temporarily with capital levels below the regulatory minimum requirement. In a world with federal deposit insurance and a lender of last resort, bank capital is no longer viewed by all depositors as the primary protector of their funds. Thus, they reduce their market discipline. Bank owners/​ managers are likely to respond by increasing their risk exposure in an attempt to regain profitability. If they win, they keep all the gains; if they lose, the losses are passed on to the Federal Deposit Insurance Corporation (FDIC). A preferred policy is to require these banks to raise additional capital at this time or to be sold. Capital forbearance is forbearance of incumbent bank management/​owners, not of bank customers. Copyright 1987 Western Economic Association International.
  • RePEc:bla:coecpo:v:5:y:1987:i:1:p:84-91
Language
  • English
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