Reforming Financial Institutions and Markets in the United States

Article excerpt

Reforming Financial Institutions and Markets in the United States, edited by George G. Kaufman (Kluwer Academic Publishers, 1994).

This book contains nine essays, written primarily by members of the Shadow Financial Regulatory Committee. Only one of the ten authors, Barry R. Weingast, is not a Shadow Committee member. The other authors will be known to those familiar with the literature on the regulation, failure, and management of financial institutions and deposit insurance.

In his preface, George Kaufman presents a short economic overview of the past twenty years in the industry. This overview helps to set the stage for the articles that follow by connecting major pieces of regulatory legislation with the economic events of those years. Several of these articles are revisions of papers which have been presented at conferences or published in other sources. Where this is the case, it is clearly stated in a footnote at the beginning of the article.

The first and seventh essays are coauthored by George Benston and George Kaufman. These are interesting and engaging discussions of the history behind the FDICIA of 1991 and what still needs to be done for deposit insurance to work properly. The first essay lays out the main points of the several proposals upon which the final legislation was based and explains the differences between them. Along the way the authors provide a history of deposit insurance and the reasons for the "failure" of the system during the banking and savings and loan crises of the 1980s. The seventh chapter deals with what remains to be done to establish a workable long-term deposit insurance system. The reference sections at the ends of these articles contain excellent sources for additional information. Chapter 4 is an excellent review, by Robert Eisenbeis and Paul Horvitz, of the issue of forbearance in handling troubled and failed institutions. In addition to full coverage of the issue, the article contains an extensive reference section for those desiring more detail. This article is also one which has not appeared elsewhere.

Two essays discuss the role of privatization in deposit insurance. Edward Kane presents a plan for shifting part of the insurance responsibility to the private sector. Richard Aspinwall discusses the pros and cons of three proposals for adding a private component to deposit insurance. Both conclude that politics and regulatory incentives are more to blame than economics for the failure to implement a workable solution. The role of politics in impeding reform is also discussed in the second essay, "Banking Reform: Economic Propellants, Political Impediments" by Kenneth Scott and Barry Weingast.

The last essay, "Financial Markets and Managerial Myopia: Making America More Competitive," while interesting, seems only peripherally connected to the other eight articles. …