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December IS. 1992
6GONOMIG
GOMMeiMTCIRY
Federal Reserve Bank of Cleveland
FDICIA's Discount Window Provisions
bv Walker F. Todd
Fn December 19.1991, President
Bush signed into law the Federal Deposit
Insurance Corporation Improvement Act
(FDIC1A), which Congress passed to address problems it saw in the supervision
of federally insured banks. An important
component of FD1CIA that has already
received substantial public attention is
the set of provisions detailing a new
process for prompt corrective supervisory action against undercapitalized
banks. Much more obscure, though perhaps as innovative, are the sections of
the legislation that modify the terms and
conditions under which the Federal
Reserve Banks may lend to troubled
banks at the discount window.
Congress felt compelled to address discount window administration in FDIC1A
because of its concern that, under certain
circumstances, discount window advances to troubled institutions could unnecessarily increase taxpayers" cost when
the firms were eventually closed and liquidated, or sold by the FDIC. Implicitly.
through the changes to discount window
administration imposed by FD1CIA.
Congress sought not only to clarify the
application of concepts like "too big to
fail." "systemic risk." and "lender of
last resort," but also to provide more
explicit guidance to the Federal Reserve
regarding the appropriate use of the discount window in failing bank situations. The aim of this Economic Commentary is to describe the evolution of
supervisory policy toward failing banks
over the last 20 years or so. with particular emphasis on the role of Federal
Reserve Banks in their capacity as
"lenders of last resort."
ISSN (W2N-1276
• Background
A regulatory closing or other failure
resolution effectively constitutes official
recognition of a depository institution's
economic insolvency. Typically, as many
as three agencies could be involved in a
bank shutdown: the chartering agency,
the FDIC, and any Federal Reserve Bank
from which the institution might have
borrowed prior to closing.
Although the Federal Reserve's formal
role in the closing is passive, it may
precipitate this action by demanding
repayment of its advances. If the borrower cannot repay the advances upon
demand, the chartering agency (the Office of the Comptroller of the Currency
|OCC) for national banks) declares the
bank insolvent and appoints the FDIC
either as a receiver outright or as
operator of a bridge bank, a kind of
conservatorship under the FDIC's control.' If there is a Federal Reserve advance, it is either repaid at once or arrangements are made for deferred
payment by the FDIC. In a liquidation,
the insured depositors are paid off in
full, followed by the secured creditors.
The uninsured depositors and other
general and subordinated creditors are
paid back in full if sufficient funds are
available, but they are at risk of receiving only a partial payback. The stockholders stand last in line for the receipt
of liquidation funds.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) made potentially the most
significant statutory alterations in the
Federal Reserve System's discount window lending regime in nearly 50 years.
FDICIA restricts the Reserve Banks1
authority to lend to undercapitalized
depository institutions in order to address issues raised by the "too-big-tofair doctrine surrounding rescues of
uninsured claimants on insolvent
banks. In addition, the new legislation
provides explicit guidance to the FDIC
on the status of uninsured claims under
the systemic risk doctrine.
This simplified model of a bank closing
began to evolve into more complicated
forms nearly 20 years ago, when the
Federal Reserve Bank of New York
made a large, prolonged advance to
Franklin National Bank of New York
to facilitate its orderly closing in 1974.
In the Franklin case, the Reserve Bank
acted as a lender of last resort because
no other institution was willing to incur
the risk of nonpayment at par by lending substantial sums to Franklin on an
unsecured basis."
Subsequently, the too-big-to-fail doctrine
evolved from federal bank regulators'
actions in dealing with large, troubled
financial institutions, roughly since the
failure and rescue of Continental Illinois
of Chicago in 1984. This doctrine generally holds that some banks, because of
either their size and correspondent banking relationships (the case for Continental) or their importance in key regional or
international financial markets (possibly
the case for both the Bank of New England of Boston [ 1991 ] and the National
Bank of Washington [1990]), should not
be liquidated with less than full payment of liabilities, including uninsured
liabilities.' Formally, too-big-to-fail
decisions are made by the FDIC, not
the Federal Reserve, but the Federal
Reserve's participation in some large
failure resolutions has allowed it to
play a significant role in implementing
this doctrine. In any case, neither
"lender of last resort" nor "too big to
fail" is a statutorily defined term guiding Federal Reserve policies — these
phrases do not appear in the Federal
Reserve Act.
In some instances, especially involving
some recent failures of large banks, institutions do not have sufficient assets
to cover both the repayment of their
Federal Reserve advances and the
liabilities owed to all other claimants
(except stockholders and subordinated
creditors). Some of the uninsured
claimants might suffer losses if the toobig-to-fail doctrine were not invoked.
If the doctrine were invoked, however,
the FDIC might need to use its own
resources to pay off the uninsured parties fully. It is easy to see that the larger
the failing bank's capital in proportion
to its assets, and the more quickly the
bank is closed upon recognition of its
failure, the less likely it is that the
FDIC would need to provide its own
funds for a troubled bank resolution.
A record number of banks have failed
since Continental Illinois, exhausting the
capacity of the FDIC's bank insurance
fund (BIF) to repay even the insured depositors beyond the reserves already provided for expected future losses. The BIF
also has had to absorb losses suffered by
an unusually large number of uninsured
claimants who have received settlements
under the too-big-to-fail doctrine.
Eventually, after Congress became
faced with the need to provide financial backing for the BIF during 1991, it
began to reconsider the process by
which bank failures were handled by
the supervisory agencies. As part of its
inquiry. Congress questioned the role
of discount window advances in failure
resolutions. Supervisory forbearance
regarding the closure of large banks
was thought to have contributed to
their ability to take greater risks and to
operate with less capital than the
market would have tolerated in the absence of the forbearance.
Congress also was concerned about possible inequities in the availability of discount window borrowings in failing bank
situations. Small banks have complained
that reducing the coverage of deposit insurance would drive depositors away
from them and into the largest banks, because generally only large banking organizations were thought to be too big to fail.
Although there apparently had been a
tendency for the FDIC to extend too-bigto-fail treatment to ever-smaller banks,
eroding market discipline further, depositors and other uninsured creditors of the
smallest banks have never really felt
equally treated by the regulatory process
of resolving bank failures.
• Discount Window Administration
Prior to FDICIA
Loans to banks through the Federal
Reserve Banks' discount windows generally take three forms: seasonal loans,
typically to small agricultural banks;
short-term adjustment loans, when a
temporary reserve deficiency cannot be
met in the national funds market: and
extended credit, when a bank no longer
has normal access to the funds market and
needs time to find alternative sources.
Most of the academic and congressional
concern that has been expressed about
the appropriateness of discount window
loans pertains to the use of extended
credit, especially when advances are
outstanding for prolonged periods.6
A traditional view of the lender-of-lastresort function, one that in fact prevailed at the Board of Governors
before 1970 or so, would have avoided
continuous borrowings by member
banks from the Reserve Banks, even to
provide liquidity to failing or insolvent
banks prior to their resolutions. The
reason is that such borrowings in effect
would have constituted use of Federal
Reserve credit as a substitute for the
member banks' capital for the duration
of the advances. A theoretically and
traditionally appropriate provision of
Reserve Bank credit in bank failures is
the extension of advances to other solvent banks holding claims on the failing banks.
Banking conditions changed somewhat
during the 1970s from their postDepression norms. Many banks, especially large ones, became more active
internationally and developed extensive interbank correspondent relationships. Moreover, the economy suffered
two strong recessions, inflation and interest rates spiraled. and bank capital
positions deteriorated. When Franklin
National Bank found itself unable to
maintain prior funding sources in 1974,
the FDIC and the Federal Reserve embarked on a sizable and protracted rescue operation. From that time forward,
it could be said that federal banking
regulators began to think of discount
window extended credit as an essential
tool to maintain the liquidity of insolvent or failing banks, though it was
several more years before such a situation actually reemerged.
CAPITAL CATEGORIES DEFINED BY FDICIA
Group 1
Well
capitalized
An insured depository institution significantly exceeds the
required minimum level for each relevant capital measure
Group 2
Adequately
capitalized
An insured depository institution meets the required minimum level for each relevant capital measure
Group 3
Undercapitalized
An insured depository institution fails to meet the required
minimum for any relevant capital measure
Group 4
Significantly
undercapitalized
An insured depository institution is significantly below the
required minimum for any relevant capital measure
Group 5
Critically
undercapitalized
An insured depository institution fails to meet any specified
capital measure
Even before the failure of Continental
Illinois in 1984 made bank rescue policy a matter of public debate, it was
generally acknowledged that regulators
behaved as though they either already
were or properly ought to be authorized
to rescue fully the uninsured claimants
on banks whose failure would pose undue risks to the U.S. banking system.
Although the FDIC Act was amended
in 1982 to provide the agency with explicit authority to lend to open insured
banks to prevent their defaults or
"when severe financial conditions exist
which threaten the stability of a significant number of insured depository
institutions or of insured depository institutions possessing significant financial resources" and the loans are made
"to lessen the risk to the [FDIC]...
posed by such insured depository institution[s] under such threat of instability," the Federal Reserve Banks'
comparable lending authority has never
been codified specifically.' Nevertheless, the Federal Reserve's participation in the resolution of large or "important" bank failures has been explained
as an essential bulwark against the
spread of this "systemic risk" in the
banking system.''
Another innovation in Federal Reserve
lending practice since the mid-1970s is
that, as with Franklin National (1974),
Continental Illinois (1984), a few large
Texas bank failures in 1988-89, and the
failures of the Bank of New England and
James Madison Limited of Washington,
D.C. (both in early 1991), the Federal
Reserve Banks also refrained from
demanding that the FDIC, in its corporate capacity, repay outstanding advances, even after the failed entities
were seized. " In those cases, the FDIC
eventually repaid the Federal Reserve's
advances, including $3.5 billion repaid
over five years for Continental Illinois
(the largest amount and the longest forbearance). Federal Reserve credit to the
FDIC enabled that agency to conserve its
cash at the time, but it did not reduce or
cancel the FDIC's obligation to repay the
advance ultimately.
The Reserve Banks' forbearances for the
FDIC or advances to the FDIC's bridge
banks (a type of successor entity occasionally administered by the FDIC when
there is no acquiring bank at the time of
seizure of a failing bank) apparently have
not increased the final amount of advances outstanding at failure. In principle,
bridge banks can be created in which
uninsured depositors are not made whole,
and the FDIC's assumptions of outstanding Reserve Bank advances need not influence the agency's decisions regarding
the standing of uninsured depositors in a
failure resolution. But defenders of the
more restrictive, traditional view of discount window lending argue that lenderof-last-resort advances to support the solvency (capital replacement) of, or to
delay the closing of, insolvent banks are
simply another way for regulators to extend de facto guarantees to uninsured
depositors and other creditors of the firm.
In effect, these advances allow such
claimants to get their money out of the
bank at full value, thereby increasing the
ultimate cost of liquidating or selling
the bank to the FDIC. The loss arises
because discount window advances
could be used repeatedly to replace
withdrawn private funds, leaving an insufficient pool of sound collateral to
cover eventual payments to the insured
and uninsured claimants who remain in
the bank. Arguably, a faster closure,
prompted by a refusal of Federal
Reserve discount window credit,
would make more of the bank's good
assets available at the time of liquidation or sale. "
Determining whether the Federal
Reserve's use of extended credit in failing bank cases materially aided or
harmed the public good is problematic,
because there are no clear efficiency
standards against which the effort can
be evaluated. Studying the history of
the Federal Reserve's advances during
June 1991, the House Banking Committee concluded that, during the six
years covered (1985-90), the Reserve
Banks had made advances of extended
credit to approximately 500 banks,
with roughly 90 percent of those institutions eventually failing during that
period.14 During May and June 1991,
Congress began to consider measures
to provide more specific guidance
regarding regulators' attempts to provide full coverage of uninsured
claimants on failed banks, with particular attention paid to the too-big-tofail and systemic risk doctrines.
• FDICIA's Discount
Window Provisions
The discount window provisions of
FDICIA are particularly significant
when considered in the context of the
Act's other provisions, especially those
pertaining to prompt corrective action.
FDICIA mandates a set of capital
strength categories for banks and requires bank supervisors to take progressively stricter actions against banks as
their capital positions deteriorate (see
box). These actions are designed to
encourage management and policy
changes at banks before failure becomes imminent. As the federal bank
supervisory agencies implement prompt
corrective action, the risk of eventual
loss to either the Federal Reserve or the
FDIC should be reduced even if the
bank is subsequently closed and liquidated or merged. Some observers, for
good reason, consider the specifications of
prompt corrective action to be FDICIA's
heart and soul, although it remains to
be seen how the statute's language is
actually put into practice.
FDICIA's discount window reforms, in
Congress' view, add another layer of
taxpayer protection in troubled bank
resolutions by restricting the terms and
condition's under which advances may
be used to assist banks with weak capital positions and by forcing more public
accountability on all of the regulators
involved in such operations. Formally,
the new discount window provisions
do not become effective until December 19, 1993, two years after enactment. However, at the time FDICIA
was passed, the House Banking Committee observed that the Federal Reserve had already altered its practices
regarding extended credit. 15
Section 141 of FDICIA essentially limits
the too-big-to-fail doctrine and also formalizes procedures for recognizing systemic risk exceptions to those limits. Effective January 1, 1995. the FDIC is
explicitly prohibited from using its funds
to pay off more than the insured amount
of deposits and from paying creditors
other than depositors.'6 Section 312 of
FDICIA immediately prohibits the use of
FDIC funds to repay at par depositors at
foreign offices of U.S. banks, subject to
exceptions for systemic risk and the early
resolution provisions of Section 143.
However, Section 312 (c) also explicitly
permits Reserve Banks to make advances
that might be used to repay such foreign
depositors as long as other applicable requirements of Section 142 are satisfied.
The systemic risk doctrine is a comparatively recent concern of regulators and
is linked in most discussions to interbank exposure and the too-big-to-fail
doctrine.17 An exception to the FDlC's
least-cost resolution procedures that
might affect the discount window limitations of FDICIA was included in Section 141 for "systemic risk." In this
context, a regulatory determination that
failure to repay uninsured claims of insured institutions at par "would have
serious adverse effects on economic
conditions or financial stability" is required to suspend the specified procedures for least-cost resolution. This
determination is based on criteria that
reflect but are potentially broader than
the prior criteria for FDIC open-bank
assistance.
The systemic risk exception—Section
141(a)(l)(G)—was included in the
least-cost resolution section of FDICIA
to provide regulatory flexibility to
avoid redemption of uninsured claims
at less than par in cases that the regulators believe might cause generalized
financial instability. Congress restricted
the exercise of this discretion by requiring that the Secretary of the Treasury
(in consultation with the President) determine that "action or assistance"
under this exception "would avoid or
mitigate" the "adverse effects" of the
failure of each institution for which the
exception is invoked. Requests for the
systemic risk exception may be initiated
by either the FDIC or the Board, but
they must be approved by two-thirds of
the FDIC's Board of Directors and twothirds of the Board of Governors.
Section 141 also requires the FDIC to
recover losses arising from the use of
the systemic risk exception by a special
assessment against all members of the
appropriate fund (either the BIF or the
Savings Association Insurance Fund).
Thus, BIF members will have an interest in preventing unwarranted use of
the exception because each surviving
insured bank must pay for supervisors'
decisions to guarantee the claims of
uninsured creditors at par. The Secretary of the Treasury is required to document the regulators' decisions on systemic risk and to submit detailed
reports to both the Senate and House
Banking Committees.
FDICIA extensively revised and renumbered former Section 10(b) of the Federal Reserve Act. The new section
limits Reserve Bank advances to undercapitalized institutions to no more than 60
days in any 120-day period. This restriction may be overridden only if the
Reserve Bank receives advance written
certification of the borrower's viability
from the head of its principal federal supervisory authority or if, following an
examination of the borrower by the
Federal Reserve, the Chairman of the
Board certifies in writing to the Reserve
Bank that the borrower is viable.19
Section 142 of FDICIA alters the borrowing regime for undercapitalized institutions (Groups 3-5; see box) as follows: Group 3 or 4 institutions may
borrow from Reserve Banks for only
60 days in any 120-day period. Group
5 institutions may borrow for only five
days. The Board of Governors may
authorize advances in excess of the 60day limit for Group 3 or 4 institutions
by treating them like Group 5 institutions and by agreeing to bear any excess loss arising from continuation of
the advances beyond the five-day limit
that applies to Group 5 institutions.
The Board (not the Reserve Banks—at
least, not directly) must repay losses
arising from advances to Group 5 institutions beyond the five-day limit to
the FDIC, with its liability calculated
as the lesser of the incremental amount
advanced after the five-day period and
the interest received by the Reserve
Banks on those advances. The Board
must report its losses under new Section 10B(b) to Congress within six
months after they are incurred."
• Concluding Observations
The discount window provisions of
FDICIA elaborated a new design for the
Federal Reserve's part of the bank failure
resolution process by providing explicit
guidance and limits on the use of Reserve
Banks' advances. The general thrust of
these provisions is to tighten the lending
criteria for undercapitalized institutions
and to specify procedures that must be
used for advances to these institutions.21
If regulators wish to invoke systemic
risk exceptions to the new least-cost
resolutions regime, FDICIA has established exacting and publicly accountable procedures for those exceptions,
which previously were only remotely
accountable to the political process.
FDICIA did not settle definitively the
policy debate on the too-big-to-fail and
systemic risk doctrines, together with
other aspects of the theory of the lender
of last resort, but it certainly has narrowed the scope of actions that
regulators may take solely within their
own discretion.
•
Footnotes
1. Most failing banks do not have Reserve
Banks' advances outstanding at the closing;
thus. Reserve Banks arc not necessary parties
at most closings.
2. See generally Sperof 1980) and In re
Franklin National Bank. 381 F. Supp. 1390
(E.D.N.Y.), 1974.
3. The uncertainty surrounding the role of
the too-big-to-fail doctrine in the failure
resolution process for the Bank of New
England and National Bank of Washington
arises from the fact that, at the time (199091). regulators were not required officially to
announce that they were invoking it.
4. See, for example. U.S. House of Representatives (1991 b), pp. 29-39.
5. See analogous remarks of Senate Banking
Committee Chairman Donald Riegle upon introducing the first Senate version of FDICIA,
5. 543. on March 5. 1991 (Congressional
Record [ 1991 ], p. S2639). Comparable
statements also appear in U.S. House of Representatives (1991a), pp. 15-18,22-23. and
(1991b). pp. 29-39.
6. See Schwartz (1992). U.S. House of Representatives (1991c). p. 94. and Garsson (1991).
7. Both Schwartz (1992), pp. 61-65. and
Hackley (1973), p. 194. discuss such historical operation of the discount window. Hackley notes, citing language then in Regulation
A (but later dropped in 1980). that "ordinary"
unavailability of Federal Reserve credit for
extended periods would not preclude such
credit "to assist member banks in emergency
situations." but that language was not demonstrated to have been aimed solely or primarily
at loans in situations where the borrower's
eventual failure was probable or certain. See
also footnote 8, below.
8. See the discussions in Todd (1988, 1992),
Hetzel (1991). Schwartz (1992). and Mayer
(1992). pp. 260-325. Federal Reserve Regulation A, 12 C.F.R. Section 201.5(a) (1992),
provides as follows: "Credit for Capital Purposes. Federal Reserve credit is not a substitute for capital." Schwartz (1992), p. 59,
describes the increased use of Reserve Banks'
advances of extended credit to failing banks
as a blurring of the distinction between
- liquidity and solvency. See also, on this
point, U.S. House of Representatives
(199 lc), p. 94, and Garsson (1991).
9. See Zweig( 1985), pp. 373,396. and
Sprague (1986), pp. 252-55.
16. This general rule gives rise, however, to
some significant logical inferences. An anonymous referee of this Commentary paraphrased
those inferences quite well, as follows:
In instances where critically undercapitalized institutions are resolved without loss
to the FDIC, all general creditors obviously will receive full value. Moreover,
where losses are experienced. [Section
141 (a)(l)(E)(iii)]... gives the FDIC
latitude to fully protect uninsured depositors in resolutions that take the form of
[purchase and assumption transactions]
... which cost the FDIC no more than if
the institution had been liquidated.
10. 12 U.S.C. Section 1823 (c)(l)(1992).
These two conditions on FDIC open-bank assistance ("significant number" and "significant financial resources") apparently are
embryonic forms of the systemic risk and toobig-to-fail rationales, respectively.
17. See. for example. Greenspan (1991), pp.
433-34. Todd and Thomson (1990). and Kaufman (1992) for discussions on these topics. I
have been unable to find explicit references to
"systemic risk" in the pre-Corainental Illinois
(1984) period.
11. In regard to regulators' emerging systemic risk or contagion concerns, see Spero
(1980), Sprague (1986), pp. 77-106, Todd
and Thomson (1990). and Kaufman (1992).
18. The new section was renumbered
10B(b) under Section 142 of FDICIA.
12. See Schwartz (1992), pp. 63-64. and
In re Franklin National Bank. 381 F. Supp.
1390 (E.D.N.Y.), 1974.
13. See Thomson (1990), p. 34. For a similar view of FDIC failure resolution policies
prior to the implementation of prompt corrective action under FDICIA. see Caliguire and
Thomson (1987). However, for a thorough
explanation and sympathetic view of the
FDIC's procedures for deciding whether and
how to close failing banks prior to FDICIA,
see Bovenzi and Muldoon (1990). For a description of how the FDIC's procedures were
applied in the Perm Square case (1982). until
recently the largest payoff of an insured
bank, see Zweig (1985). pp. 371-74.
14. U.S. Houseof Representatives(1991c).
p. 94, Garsson (1991). and Schwartz (1992).
pp. 58-59.65.
15. The House Banking Committee's legislative history report on FDICIA notes that
"The Federal Reserve currently [written in
November 1991] maintains a policy of not
extending credit to nonviable depository institutions. The Committee expects the Federal
Reserve to adhere to this policy and refrain
from making advances to institutions in situations where the Federal Reserve would likely
suffer a loss on the loan." (U.S. House of
Representatives [1991c], p. 105).
19. These certifications are renewable for
additional 60-day periods, but the authority
to do so cannot be delegated by the head of
the appropriate supervisory authority.
20. In practice, the Board would repay
those losses by special assessments for its expenses on the Reserve Banks. See Section
10(3) of the Federal Reserve Act.
21. The House Banking Committee's legislative history report (U.S. House of Representatives [ 1991c], p. 105) states explicitly
that Section 141 of FDICIA "abolished" the
too-big-to-fail doctrine, but perhaps this is
too strong a conclusion.
•
References
Bovenzi, John F., and Maureen E. Muldoon. "Failure-Resolution Methods and
Policy Considerations," FDIC Banking
Review, vol. 3, no. I (Fall 1990), pp. 1-11.
Caliguire, Daria B., and James B. Thomson. "FDIC Policies for Dealing with Failed
and Troubled Institutions," Federal Reserve
Bank of Cleveland, Economic Commentary,
October I, 1987.
Congressional Record, vol. 137, no. 37
(March 5. 1991), 102nd Congress, 1st Session.
Garsson, Robert M. "Gonzalez Says Fed
Actions Fueled the Bank Fund's Losses,"
American Banker. June 12. 1991, p. 8.
Greenspan, Alan. "Statement before Committee on Banking. Housing, and Urban Affairs, U.S. Senate. April 23. 1991," Federal
Resene Bulletin, vol. 77. no. 6 (June 1991),
pp. 430-43.
Hackley, Howard H. Lending Functions of
the Federal Reserve Banks: A History.
Washington. D.C.: Board of Governors of
the Federal Reserve System, 1973.
Hetzel, Robert L. "Too Big to Fail:
Origins, Consequences, and Outlook,"
Federal Reserve Bank of Richmond,
Economic Review, vol. 77. no. 6 (November/December 1991). pp. 3-15.
Kaufman, George G. "Bank Contagion:
Theory and Evidence." Federal Reserve
Bank of Chicago. Working Paper Series No.
92-13.June 1992.
Mayer, Martin. The Greatest-Ever Bank
Robbery: The Collapse of the Savings and
Loan Industry. New York: Macmillan Co.
(Collier Books). 1992.
Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OH 44101
Address Correction Requested:
Please send corrected mailing label to
the above address.
Material may be reprinted provided that
the source is credited. Please send copies
of reprinted materials to the editor.
Schwartz, Anna J. "The Misuse of the
Fed's Discount Window," Federal Reserve
Bank of St. Louis, Review, vol. 74, no. 5
(September/October 1992), pp. 58-69.
Spero, Joan Edelman. The Failure of the
Franklin National Bank. New York: Columbia University Press, 1980.
Sprague, Irvine H. Bailout: An Insider's
Account of Bank Failures and Rescues.
New York: Basic Books, 1986.
Thomson, James B. "Using Market Incentives to Reform Bank Regulation and
Federal Deposit Insurance," Federal
Reserve Bank of Cleveland, Economic
Review, 1990 Quarter 1, pp. 28-40.
Todd, Walker F. "Lessons of the Past and
Prospects for the Future in Lender of Last
Resort Theory," Federal Reserve Bank of
Cleveland. Working Paper 8805. August
1988. Also in Proceedings of a Conference
on Bank Structure and Competition, Federal Reserve Bank of Chicago (May 11-13.
1988). pp. 533-77.
. "History of and Rationales for
the Reconstruction Finance Corporation,"
Federal Reserve Bank of Cleveland, Economic Review. 1992 Quarter 4, pp. 22-35.
, and James B. Thomson. "An
Insider's View of the Political Economy of
the Too Big to Fail Doctrine," Federal Reserve Bank of Cleveland. Working Paper
9017. December 1990. Also in Public Budgeting and Financial Management: An International Journal, vol. 3. no. 3 (1991), pp.
547-617: and in Congressional Record, vol.
138.no. 102 (July 20. 1992). 102nd Congress. 2nd Session, pp. S9978-S9987.
U.S. House of Representatives, Committee
on Banking, Finance, and Urban Affairs.
The Failure of the Bank of New England
Corporation and Its Affiliate Banks. Hearing. 102 Cong. I Sess.. Serial No. 102-49,
June 13, 1991a.
. Failure of Madison National
Bank. Hearing, 102 Cong. 1 Sess.. Serial
No. 102-38, May 31, 1991b.
. House Report No. 102-330. to
accompany H.R. 3768. November 19.
1991c. [Legislative history report on House
version of FDICIA.]
Zweig, Phillip L. Belly Up: The Collapse
ofPenn Square Bank. New York: Crown
Publishers. 1985.
Walker F. Todd is an assistant general counsel and research officer at the Federal
Resene Bank of Cleveland. The author
thanks Joseph G. Hauhrich. Christopher J.
Pike. Mark S. Sniderman, and James B.
Thomson for helpful comments.
The view's stated herein are those of the
author and not necessarily those of the
Federal Resene Bank of Cleveland or of the
Board of Governors of the Federal Reserve
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