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For release on delivery
ll:00 ô.il.,
August
29,
E.S.T.
1989
FINANCIAL REFORM: ASSESSING RISK. STRUCTURE. AND REGULATION
" i: l,l :,i:LeerrHoskl fìs,r : p¡at I dent
r Feder.al ,; Reser.ve',Bank :of :.Cl evel and
Community Bankers of Pennsyìvanla
Annual Convention
t^lhlte. Sulphur Sprlngs, .l,lest Vlrglnla
August 29,
1989
Financial Reform: Assessing Risk, Structure, and Regulation
Good
session,
afternoon ladies and gentlemen. As a closing speaker at a multi-day
I
am alvrays
a
little
anxious about the attendance, especially
a beautiful resort as the Greenbrier. So,
feeling a
litt'le
smug when
I
saw
It's
to
wi
was
for prizes
such
relieved and, to be honest,
the size of today's turnout; that
learned about the wonderful drawing
be present
I
in
and the condition
is, until
I
that you must
n.
always a pleasure
Communlty Bankers
well-managed, so
to
speak
of Pennsylvania.
to
such a distinguished group as the
Pennsylvania communìty banks are
I don't have to spend time stressing the importance of the
,'"fundamentals,,of¡banking;,rthisigroup,;under.stands.andipractices;them.well.
.Rather,'I'wouldilike to.,.talkr,about.the,need:,to:'reform'the'financial industry.
Baslc regulatory reforms are needed to encourage a more
resilient
and,
therefore, a more stable industry in a fast-paced, globa'l financial market.
l.le can no longer
rely on the system of rules
the industry since the Depression.
þle must
and regulations
that
has governed
allow market forces to guide the
industry.
It is my Íntent today to outline three key reforms necessary
to
reestabllsh market forces in the financial services industry. First, federal
deposi
,
t
i nsurance must
be I lmi ted. Second, government authori ties must pursue
supervi sory pol i ci es and practi ces rather than regul atory
.:should,separate the deposit. insurance :function from
supervi sory function.
ones.
Thi
rd,
we
the'financial institution
The Current Debate
of the flnanclaì services industry has become a hotly debated.issue
ln the 1980s. There ls a growlng realization that our bank and thrlft
regulatory systems are ln need of reform. Prlvate sector estimates of the
cost of cleanlng up the thrtft lndustry alone are over $124 billion, or over
$l ,000 per tax return.t l.lhat's rnore dlscouragtng is that, without reforming
the current system, lt ls entlrely posstble that the U.S. taxpayer wlll
Reform
confront future bailouts comparable to the present
The
thrift crisis.
recently passed.Flnanclal Instttutions Recovery, Reform, and
Enforcement Act
of
reguìatory aspects
1989 (FIRREA),
of the thrlft
partially deals wlth the fiscal
problem by commlttlng $50
:,¡i:msney:'rto,:close,,r:rêorgani ze;j.ori'i:recapl.tal I ze ithe,iri nsol
'.'thrlftl.industry.
and
billton ln new
ventiportlon,:of
,:the
:iSadìy,i;FIRREA;does i"not''',undertake ifundamental 'reform
regulatory framework ln ways that
wlll
of
our
lncrease the efficlency and long-run
stability of the banklng system and, ln turn, protect the publlc
purse from
losses generated by lnsured financlal institutions.
Reformers can be separated
role for regulation to ltmit
role for
management
Proponents
'..,market
lnto two camps.
bank povrers and
One camp proposes an increased
activities.
This
means
a
reduced
discretion, shareholders' control, and market discipline.
of "reregulatlon"
base
their reforms on a belief that ln
banking,
jsolutlons.are dangerously.unstable. . -In thelr view, .increased
'.;.regulatlon'pr'otects:the.publlc.,purse,.from losses -by,prohibiting banks'and
'thrlfts from participating in activlties that are deemed "excessively risky."
I
believe advocates
of increased
reguìation are misguided
in their notion that
left to their own devices are inherently unstable. In fact,
I beìieve the current thrift situation is evidence that attempts to increase
financiaì markets
the short-run stabiìity of the banking system through regulation
efficiency and undermine the long-run stability of the bankìng
2-
gnaw at
system.
I
shape
belong
to the camp of reformers that
the structure
of the financial
wouìd
services industry. The driving force in
any reform package should be the reestablishment
in financial servlces. Thls means that those
galns
of rlsky strategies
rely on market forces to
of the risk-return trade-off
who
benefit from the upslde
would be the same ones who would bear the downslde
losses when such strategies do not pan
well-functlonlng financial industry
out.
The linchpÍn
to
a
ls a reduction in the scale and scope of
federaì deposit insurance. This reform and the others
I will talk about would
relnvlgorate market forces, and thereby increase the efficiency and ìong-run
stabtltty of the banklng
system.
l,lhv Markets?
:,,iMarkets; provi de.::us : þrl th fthel¡besti:al I ocatl.on'',of lir"esgg¡ç95.r:ô.fìd':ihencê
,
the
r:..ttþst:eff I cl ent,':sol utlon. ..'...A.lthough':fears "of Ìi nstabÍ ì i ty 'are'often -the ':pretext
for regulatlon, I would argue that market solutlons wlll lead to greater
stabllity. In practlce, markets have worked extremely well in providlng
and servlces ln a varlety of lndustrles. Market-oriented economies have
outperformed, and contlnue
the world's stalwarts
Republlc
their
of
China
--
goods
to outperform, centrally planned economies. Even
of lnterventlon --
the Sovlet Union and the People's
are looklng toward the reestabllshment of markets in
economies.
'i' In,the'United States, the trend during.the.late .l970s and early.l980s
':
one'.of deregul ati on, : i nc I udi ng', deregul ati on, of : the,oi l,
communicatlons, and transportation
was
and ; Çàs,
industries. Deregulation in this country
cannot necessarily be
attributed to the ideological leanings of the
Administration, since
its
impetus began during Jimmy Carter's
Reagan
term. Nor can
of the U.S. economy and the world economy in generaì be
attributed to the desÍre of governments and bureaucracies to give up economic
the deregulation
-3-
or political power. Instead, I belleve that deregulation is due to a growlng
recognition that markets produce the most efficient and stabìe outcomes.
Furthermore, ln an increaslngly integrated global marketplace, competitors
of the needs of the marketplace to survive. Similarly,
lf our financlal lndustry is to prosper into the twenty-first century, we must
must be acutely aware
do away wÍth costly market insulation.
Requlation and
l.lhy
lts
Costs
are reguìated flrms unable to compete wÍth the unregulated? Regulated
lndustrles are unable to react flexlbly and efftcientìy to change. Regulated
systems
adapttng
'jill
llke our current banklng and thrtft industrles, are less capabìe of
to
shocks
97-0s ; i,the;i.dl s i
or
changes
ln markets, llke the lnflatlon of the late
nf I ati on i of ,rtheliJ 980s ;¡:tethnol ogi cal:;,sþ¡¡ges ,:;1ot
','rne':entry
iijunregul ated ;producers. '':Insteadiof ,'market-dri ven ''changes 'l n :resources 'and
operations, the result often
ls
unforeseen changes
.of
ln the slze and mlx of
regulatory taxes and subsldies. Exlsting regulatlons often become less
effective or even counterproductive. In the financial lndustry, subsidies
inherent in fixed-rate deposlt lnsurance, free
because deposltory
practices to take more advantage
'
payments over
wire transfer systems, and access to dlscount
Federal-Reserve-operated
credit increase in slze
finaltty of
of
institutlons
change
their
window
business
them.
',' , Not surprl si ngly, ,the response ,of . regul ated .systems
to external
.shocks
l:usually,is..to attempt;to alterlthe'mix'.of.;'regulatory,taxes.and.'subsidies to
accommodate
the shocks.
The
regulatory response usually lags developments in
the marketpl ace and ì s typi cal ly pi ecemeal .
market innovations
Usual
ly, i t
ei
ther val i dates
or reregulates areas where market forces
regulations obsolete. Thi s may include instituting
to limit or prohibit
new
nevr
have made existing
regulations designed
activities that are deemed "too risky" (for
-4-
example,
thrifts'
in junk bonds); removing regulations that are no longer
enforceable or too costly to continue (for example deposit rate ceillngs); or,
modifying existing regulations (for example risk-based capltal standards for
investments
for thrifts). !,le have seen in the
financlaì industry that the regulatory response ls to deal wlth the symptoms
of the shock without allowing the system to adjust fully to the shock. More
banks and RAP accountlng standards
often than not, our policles tend to protect the regulators'weakest cllents
at the
expense
of both the efflclent flrms ln the industry
and
the stabillty
of the banking system. The current thrift lndustry collapse ls the most
recent and promlnent example of thls flaw ln a system of strlct regulatlon.
Inevltably, the costs of regulatlon escalate, and, as the thrlft sltuatlon
lndicates, unless the costs are dealt wlth prompily, they can
^,,
become
ìii,'UncOntrol I abl e.r,r.l;ftsgul atory,-,1nter:ventlOnS;,1nà,rthei'barikl ng:lsyStem'ìhave
"treated
;ian":environment;:ln.:whìch.marketr,:forces;tarelilgnored,soroften':that,profits'are
difflcult to achleve withln the llmlted
regulators are
wl I I
scope
of actlvltles that the
Íng to permit. Consequently, lncreased subsidies
become
to permit regulated entltles to compete with unregulated
lnterlopers. As the taxpayers of this nation are witnessing, lt becomes very
necessary
costly to continue to protect the regulated. In addition, the presence of the
subsldy adds
to the temptatlon for polltlcal lnterests to treat
entitles as public utllltles
.
i.,obJectlves
--
CRA
and asslgn them
a laundry
regulated
list of soclal
lendlng gutdel ines and I ifel ine. banklng, as examples
'i:"lregardless;of whether..or,,'not.the'businessesican make'a profit,doing so.
':" lnevitable result is the relative
decllne
efficient unregulated entities attract
l'le have seen thi
Advances
in
of the regulated sector
as
-,.The
more
customers abray from regulated firms.
s trend in the banking industry since the early ì960s.
communications and computer technology have increased the
efficiency of financial markets and fostered the
-5-
deveìopment
of
new
unregulated products, such as money market funds, which are substitutes for
traditional banking products. Technoìogical innovation coupled with
inflationary pressures of the
1970s and
early.l980s eroded, and in
instances compìetely broke down, the barriers between banks,
the
some
thrifts,
and
other providers of financial services. Furthermore, with the gìoballzation of
financial markets, U.S. banks met lncreasing competltion from forelgn banks in
the internatlonal and domestlc markets. Increased competìtion from both
foreign banks and nonbank provlders of financlal services has reduced banks'
of the financlal services market from 36 percent in ì974 to 27 percent
at the end of 1988. Total share of the financia'l services markets accounted
for by banks and thrifts combined peaked at 55 percent tn ì974 and fell
share
'
conslstently throughout the 1980s to 44 percent in
1988.'?
,,'rt'Perhapsrithe,;most,.drainatÍci'exampIe"of;ther;-ultlmate;ishrihkage:of
,'{,regul ated isector;rri s,::the'::.current,:rrestructuri ngi'of :the ',thrÍ
thrift
lndustry
FIRREA.
that restrict or.prohlbit
wlll
:the
ft 'i ndustry. 'The
llkely shrink by at least one-thïrd in the next
couple of years as the insolvent portion of the industry ls shut down. The
increased efficiency of secondary mortgage markets and competitìon from
mortgage brokers in primary mortgage markets seem likely to further diminlsh
the size of the current thrift industry as the spread between the cost of
funds for thrlfts and what they can earn on thelr mortgage portfollos narrows
further. This squeeze on thrift earnings ls intensified by provisions in
.,
most
thrift
investments
Ín potentiaì ìy profitable
high-yield corporate.bonds, and,.require,:thrifts.to keep 70'percent
":',:1.:j'areasllike
' of their assets
in mortgage-related
assets.
Market-Based Reforms
Market-oriented reform
of the reguìatory structure is
necessary
to
ensure
a stabìe, efficient financìaì industry and to guard against future
multi-bilìion-doìlar rescues.
To restore market
6-
discipìine as an integraì
part of the supervisory and reguìatory structure
we must develop
a supervisory
for allowing banks of alì sizes to fail. Thts is important, because
fallure ls the mechanlsm through whlch the market corrects persistent and
substantial inefficÍencies and is a sure-fire way to reduce the subsidy
tolerance
associated
with the federal safety net.
Using market
It
discipline to replace regulation
has many
beneflts. First,
of bank supervislon. The perverse lncentives
for regulators to adopt pollticalìy motlvated forbearance policles are
lncreases the effectiveness
minimlzed. Speclfically, market discipline serves as a check on the overall
it
of regulatory capture by
large and pol ltlcal ly tnfluentlal flrms in the regulated industry. Second, by
reduclng access to funds, markets naturally curb the growth of weak
supervlsory process and
reduces the probabillty
':,r'i.lnstitutl ons:;and:rqu i ckl y*force:ithei:cl osure l of ,l;l nsôl veht';:i
'.r.Aì though r,the
among
ns
tl tutl
ons
.
¡market rl s i someti ¡s 5,'l r:harsh 'regu'l ator,""market iforce s -d i s cîi
lnstltutlons accordlng to relatlve risks
and not on the basls
ml
nate
of slze or
charter type.
One caveat
to note ts that the reforms that
I
propose assume
the industry
to which they are applied is healthy. This is especialìy true for deposit
insurance
reforms. Obviously this is not the case today for either
banking or the
thrift industry.
Therefore,
I
the
make these recommendations under
ls utillzed to recapltalize,
or close insolvent and -unsound f nstltutions. : FIRREA ls an
the presumption that a transitlon perlod
::.rêorgð.rìize,
'.',,important'first step'in this,dìrection.',::,Houlever,r considerably more needs.to
'be
done before
a comprehensive package of deposit insurance and regulatory
reforms can be implemented.
-7-
Depos i
t-Insurance
Reform
to any market-orlented
is extensive
of federal deposit
insurance. The degree to which we implement fundamental reforms to federal
deposit lnsurance wlll determine the nature and scope of reforms to the
remaining regulatory structure. Restoring market discipl ine as an effective
Key
constralnt on bank and
system
reform
thrift activities is the main purpose of
in the coverage and priclng of
federal deposit guarantees to eliminate or reduce the degree to whÍch the
deposlt-insurance reform. Thls entails changes
taxpayer subsidizes risk-taking by
To restore proper
managers,
financlaì lnstitutions
dlsctpllne to an institutlon's shareholders
and
federal deposit insurance coverage must be ìimlted and correctly
.lrpniced.,.r:'Atl'the:,v€r!-:least,r,:thea,currentj:statutoryil'i'inf tl'of.ii$100;'000.per
.,.1,,insured;:deposlt:,account:lat'ieach,';insured,rbanklshould.be"strictly:95rarved.
institutlons, regard'less of slze or charter type, must be closed
found
to be insolvent, and deposit insurance
coverage must
to expllcitly uninsured deposÍtors,
All
when they are
not be extended in
creditors,
and
of the present limit would require some changes in
failure-resoìution policies of the Federal Deposit Insurance Corporation
the
any circumstance
s
tockhol ders
Strict
unsecured
.
enforcement
(FDIC). By seeking to minimize insured deposlt payouts, uninsured claimants
,'.'are protected, a practice whìch eventually evades market discipline and, as
we
:1,:,¡¡g'.5geingi'now,'great'ly,increases;long-term.uninsured,'claìfis;êxposuFêS.
'' Furthermore,' strict enforcement of the deposit insurance cei I ing would ensure
the equitable treatment
institutìons regardless
of uninsured depositors and other creditors of failed
of size or type of charter. In fact, any ìegislative
-8-
of deposlt insurance must aìso come to grips with the "too big to let
faiì" doctrine to ensure that all institutions are treated equally. Such
reform
changes would
restore
some measure
of
market
disclpline to banklng and would
let fail" doctrlne the burial it deserves.
to truly reap the benefits of deposit-insurance reform, I
give the "too big to
However,
that
we must reduce
the statutory limits to levels significantly below the
limit. In establishtng
current
believe
the new limit we should explicitly declde what
ts the purpose of deposit lnsurance. It seems to me that the purpose is to
provide a certaln amount of protection to depositors. It should not be to
provlde competltive advantages to one class
servlces. A slgniflcant reductlon ln
of
providers
coverage would be
of financlal
qulte consistent with
deposltor protectlon, reduced subsldles to regulated ftrms, and reduced
.':ij,lIabLIl.ty,.for,itaxpayers.''ii:0nei;¡pos.sIbIIity:.would,,be:rto:rreduce:the'.ìimit,:from
r:'$100,000;to, ':for'iexample,,, $25ï000,.perraccount;"'l ndexed 'to ''the Consumer :Pri
Index
(CPI).
Such
ce
a reductlon ln coverage would be consistent with the desire
to provide a safe haven for the savings of the maJority of this nation's
cìtizens while reestablishlng large depositors as a form of dfsclpllne
risk-taking. After all,
on
for inflation in the CPI is
roughly equlvalent to the $2,500 limit originally established in 1934.
Moreover, the average lnsured deposit account in both banks and thrifts is
$25,000 today adJusted
only about $8,000.
.'i If'greater
coverage were,deslred,.a coinsurance feature could.be added for
"..itadditional'deposit balancesjabovet,the.$25,0OOiceilirì9..,j For.example,'the.FDIC
couìd provide 90 percent coverage
for
coverage for
coverage
develop
for
balances up
to $50,000,80 percent
balances above $50,000 and less than $ì00,000, and 70 percent
balances exceeding $100,000. Private insurance markets might
to provide coverage for the coinsurance deductibìe portion of
-9-
the
deposit
for
those depositors who desire 100 percent
depositors with baìances in excess
Treasury
deposits
of
protection.
Furthermore,
$ì0,000 already have access to U.S.
biìls, which are cìose substitutes for federally
for liquidity purposes.
guaranteed bank
Supervision. Information. and Prompt Cìosure
Instilling
more market-driven incentives
requires a sharp break
ln tradition for
both government authorittes
the FDIC, the Comptroller, and the Federal
of the flnancial industry.
judgment
of
into the financial lndustry
Reserve
--
and you
--
Rather than imposing unconditional
managers, government
-- like
the
managers
ltmits on the
authoritles should further reduce regulatlon
this
and loosen the regulatory reins on managers. Under
approach, managers
'.,,,andi,shareho'ldg¡5:!:al.ike,:would:be,:forced:to,morer',carefully':weigh'irisks':and share
:
Ín',the :outcomes',of :their.:'decisions.
deposits
will
;The' abi ì
ity to attract'and
emanate from successful business
.maintain
decislons, not a deposlt
insurance subsidy from the taxpayers.
of the industry, this type of world means less
security provided by the government than in the past. l^lhile, on the surface,
this may appear disruptive and uncomfortable, there are longstanding gains for
For you, the declsionmakers
you, your industry, and society. These reforms encourage a more stable
more
efficìent financÍal services industry than
' .The appropri ate roì
: :.
:to:' dl
sti I ì ..the
e.
of
' fi nanci al condi tion standards;
fi c
body
such as capi
would monitor and supervise firms
we have today.
ti es i n . thi s reformed worl d
government authori
numerous, :,often.r speci
and
.of
tal
regul
requi
i
s
ations i nto, a .felr
rements. The regul ator
to insure that the prescribed financial
condition guidelines were being observed. As ìong as the institution met the
gui del i nes,
restri ctions on behavior
woul
-l 0-
d be mi nimal .
of such a supervisory policy might take the form of a
three-tier system of standards and restrictions. Institutions meeting the
A good exampìe
highest flnancial condition.standards would operate without any restric¡ons
from the supervisor. Oversight wouìd be limited to detecting fraud and other
irregularities ln the bank's operatlon, and collecting and dissemlna¡ng
information. Institutions falling short of the standard would be subJect to
restrictions. Instìtutions that falled to meet some deflned mlnimum flnanclal
condition standards would be glven 90 days to recapitallze and reorganlze or
be closed or sold by the supervisor.t
'Central to thls supervisory approach and increased market partlclpation is
the tlmely dlssemlnation of lnformation. A prlme concern of the supervlsory
authorlty would be to assist lnvestors and savers by provlding
adequate
.":i:nformationr.forriinf,ormedidecislonmaking.'í':,Exatn.inatlon:'ratings;::cease,and
¡,desisttorders,Ìsupervisoryiagreements;'.and:other"regulatory
actions should
be
published by the supervlsory
accounting
firms should
authorlty. In addltion, audlts by independent
be required for al'l flnancial institutlons, although
the frequency mlght also depend on how welì-capitallzed the instituilon
Supervisory authorities,
ln turn,
able to identify and close troubled
need
r+as.
timely, accurate informatlon to
institutlons.
be
or the failure of
institutions carries negative connotatlons, but what does failure actually
mean?
It
Closure
doesn't mean that the physical assets disappear, but that the failed
,'institution's
resources are put.to.more efficient,uses. , Permitting banks to
r'faiì'can:'strengthen;the banking,system,and the nation.
r,.
First,.the.very
'possibility of bank failure provides strong incentives to bank management to
follow sound banking practÍces. Second, the reality of a bank failure is a
powerful reminder to
others. Finally, lìquidation of a bank prompts the
reaìlocation of scarce labor and property resources to more efficient uses,
and removes the need for taxpayer subsidies to prop the bank up.
-l ì-
Separatinq Supervision and Insurance
at the Federal Level
flnal proposed reform ls to separate the insurance and the supervisory
functions. This is necessary to ensure prompt closure of insolvent
My
instltutions, and it serves as a check on overall regulatory ìaxity.
By
separating the insurance function from the supervision function, vle remove
possible conflicts
of interest between those two functions.
For example,
under the present system the deposit insurer could adopt a policy
forbearance
to cover up its
ot'ln supervisory
errors.
of capital
As an insurer, the
deposlt insurance agency should have the strongest possible incentives to
malntaln the value
of its
lnsurance
fund. I
suggest
that insurers not
supervise, and that they have greater control over the terms and conditions
.'::'underi;íwhi chithey.itroù'l d :ôfferl,deposi
t .i nsurance.
"rIn,:addition'.to.,separating",¡¡s.'deposit:insurer:from'supervìsory
responslbillties, the
overly
permi
.requlres
use
of the deposlt
lnsurance function as a check
on
sslve supervl sion, and on regulatory forbearance pol icies,
some
basic changes to the deposlt insurance
functlon. First,
the
deposit insurer must have the right to immediately terminate insurance
coverage
in
for
deposits when it determines an ìnstitution
is
being operated
an unsafe and unsound manner. Second, the deposit insurer must have the
ablllty to
,
new
'lncludÍng
to institutlons based on risk,
regulator risk. The deposit insurer could even factor. lnto its
charge
differential
premiums
¡'pricing.decisions,the.loss,experience.associated,with'each'regulator,'thereby
establ i shi
ng
a pseudo-market price for regulatory services.
would factor the deposit insurance premium
when choosi ng
a
supervr sory
counter to the provisìon of
responsi bi I i ti es
differential into their
agency. Unfortunateìy,
FIRREA
Banks and
some
of
-12-
decision
these changes run
which increases the supervisory
of the FDIC.
thrìfts
Conclusion
of the thrlft bailout and the record number of thrift
and bank failures in the past several years is evidence that our financial
regulatory system has not resulted in a highly efflcient and stable financial
services industry. 0ur current system of regulatory taxes and subsidies is
unworkable, and likely to become more so, as lnnovative bankers manage to
The enormous cost
extend the deposlt insurance subsidy
to new products
and
needs.
It is tlme
for us to make a choÍce between a reguìatory structure that relies
more
heavily on markets or one that relles on bureaucratic rules and pollttcal
judgments. For me, the cholce
is clear: if
efficient and stable
financlal system and want to avoid FSLIC-type bailouts in the future, we must
i.choose':ai:market:or: i ented :sol uti on
we want an
.
'Ïo-'achieve 'a,:more:responsìve:imarket-oriented regulatory',system
I
have
advocated a number of reforms including:
Reducing
the cost and the
of deposit
scope
transfer of risk to the deposit insurance
Relying on supervi sion, dissemination
closure
of
i
nstltutions instead
Separati ng ,the deposi
Reforms such as these
effi
ci ency and stabi I i ty
will
t
insurance
system and
to minimize
to
the
taxpayers.
of information, and prompt
of increased regulation.
insurance and supervisory functions.
help us achieve our goals
of the financial
from future ìoss.
-t3-
system and
of
long-run
will protect the
taxpayer
Footnote
s
I
The $124 billion lncludes $50 billion for prior case resolutions and $74
lì ion for restructuring lnsolvent thrifts. The $l 24 bil I ion estlmate does
not lnclude financing costs of $81 billion ($150 billion) if the spendÍng is
financed over I0 (30) years at current market interest rates. See Barbara
Pauley, "The Thrift Reform Program: Summary and Imptications," New York:
bi
Soloman
Brothers, April
1989.
' The financial services market is defined here as the total credit market
debt clalms against domestic nonfinancial sectors. See t^I. Lee Hoskins,
"Reforming the Banklng and Thrlft Industries: Assessing Regulation and Risk,"
M. Enole Lecture In Economic Securi , presented to the American
ê99
ryn
Mawr,
'
t A simllar proposal can be found ln George J. Benston and George G.
Kaufman, "Risk and Solvency Reguìation of Depository Institutions: Past
Pollcies and Current Options," staff Memoranda 88-'1, Federal Reserve Bank of
Chi cago.
-14-
@FedFRASER