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Reducing Banks' Incentives for Risk-Taking Via Extended Shareholder Liability

It has long been understood that deposit guarantees and too-big-to-fail (TBTF) policies create a moral-hazard problem they incentivize banks to take on too much risk by shielding depositors and shareholders from losses in excess of equity (“left-tail” outcomes) in American banking.1 Congress passed the Federal Deposit Insurance Corporation Improvement Act (FDICIA) in 1991 to mitigate the moral-hazard problem by restricting forbearance and implicit subsidies for undercapitalized banks. ....

United States , National Bureau Of Economic Research , New York , United Kingdom , Seattle University , Across Bank , United Kingdom General , Jonathanr Macey , Milton Friedman , Alexanderw Salter , Howelle Jackson , Haroldl Cole , Tyler Cowen , Johnr Vincens , Johnd Turner , Walter Bagehot , Leee Ohanian , Masmi Imai , Ronj Feldman , Vipin Veetil , Graemeg Acheson , Benjaminc Etsy , Hester Peirce , Axel Leijonhufvud , Charlesr Hickson , Warrene Weber ,

Beyond the Bailout: Long-Term Solutions to the Crisis in FederalDeposit Insurance

(Archived document, may contain errors)   N696 I The Heritage Foundation 214 Massachusetts Avenue N.E. Washington, D.C. 20002 (202)5464400 The Thomas A. Roe Institute for Economic Policy Studies C March 16,1989 BEYOND THE BAUDUE LONG-TERM SOLUTIONS TO 'IW3 CR&S IN INTRODUCI'XON FSLIC The I Th; high pnce tag, however, is not the main problem with the Bush p lan. ....

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