Prompt Corrective Action
Encyclopedia
Prompt Corrective Action is a US
federal law mandating progressive penalties against banks that exhibit progressively deteriorating capital ratios. At the lower extreme, a critically undercapitalized Federal Deposit Insurance Corporation
(FDIC)-regulated institution (i.e., one with a ratio of total capital / assets below 2%) is required to be taken into receivership
by the FDIC in order to minimize long-term losses to the FDIC. The motivation behind the law is to provide incentives for banks to address problems while they are still small enough to be manageable. Spong (2000, pages 90–95) summarizes the details (http://www.kc.frb.org/home/subwebnav.cfm?level=3&theID=9771&SubWeb=2).
In an interview on Bill Moyers Journal broadcast April 3, 2009, former bank regulator William K. Black
asserted that federal officials were ignoring the PCA law requiring them to put insolvent
banks into receivership. The PCA law applies only to institutions insured by the FDIC and therefore would not affect, for better or worse, companies such as AIG.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
federal law mandating progressive penalties against banks that exhibit progressively deteriorating capital ratios. At the lower extreme, a critically undercapitalized Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
(FDIC)-regulated institution (i.e., one with a ratio of total capital / assets below 2%) is required to be taken into receivership
Receivership
In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in...
by the FDIC in order to minimize long-term losses to the FDIC. The motivation behind the law is to provide incentives for banks to address problems while they are still small enough to be manageable. Spong (2000, pages 90–95) summarizes the details (http://www.kc.frb.org/home/subwebnav.cfm?level=3&theID=9771&SubWeb=2).
In an interview on Bill Moyers Journal broadcast April 3, 2009, former bank regulator William K. Black
William K. Black
William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black's expertise is in white-collar crime, public finance, regulation, and other topics in law and economics...
asserted that federal officials were ignoring the PCA law requiring them to put insolvent
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
banks into receivership. The PCA law applies only to institutions insured by the FDIC and therefore would not affect, for better or worse, companies such as AIG.
External links
- US Code Title 12, 1831o, Prompt Corrective Action
- William K. Black comments on PCA http://www.pbs.org/moyers/journal/blog/2009/04/william_k_black_on_the_prompt.html