Academic journal article Public Administration Review

Reinventing a Government Corporation: Professional Priorities and a Clear Bottom Line

Academic journal article Public Administration Review

Reinventing a Government Corporation: Professional Priorities and a Clear Bottom Line

Article excerpt

Economic theories of organizational behavior assume that private organizations are driven by efficiency concerns. If the organization is not reaching its goals in an efficient manner, profits drop, dividends are withheld, and competitors are encouraged to challenge the organization's place in the market. A bottom-line profit allows these organizations to measure successes and failures, and motivates the search for less costly ways of delivering goods and services. The public administration literature has long advocated that public executives adopt business-like techniques to make their operations similarly efficient (Wilson, 1887; Gulick and Urwick, 1937; Fayol, 1949), and today's public management literature is no exception. Executives are encouraged to create bottom lines, or measures of performance toward which employees can work, and by which they can measure their progress (Behn, 1992; Osborne and Gaebler, 1992).

In this case study, I examine management changes in the Federal Deposit Insurance Corporation (FDIC) at the height of the recent banking crisis and argue that the agency's clear bottom line, the Bank Insurance Fund (BIF), played a crucial role in motivating and facilitating important shifts in organizational resources, authority, and structure. More than an indicator of performance, a well-managed and solvent BIF provides the agency with income and is essential to the agency's political autonomy. Further, professionals in the FDIC place a high value upon protecting the BIF because it is also key to their own professional autonomy. Management changes aimed at facilitating the BIF's viability have consequently been embraced by agency personnel as "necessary" adjustments.

The FDIC was created in 1934 to manage the federally guaranteed insurance fund for bank depositors and to be the primary supervisor for several thousand state-chartered banks. For more than half a century, the deposit insurance fund was solvent. Premiums paid by banks for insurance coverage and the interest earned on insurance funds through the investment in government bonds provided sufficient income to protect depositors in failed institutions, and to cover the FDIC's operating expenses. Beginning in 1983, however, the FDIC's expenses began to exceed the amount it received in bank premiums. Most critical, the number of bank failures that year escalated from 5 (on average) to 48, and reached a decade total 1,086 in 1989 (FDIC Annual Report, 1991, p. 132).(1)

The FDIC's own operating expenses also placed a strain on the fund. There were more troubled banks to supervise, more failed banks to resolve, and a greater number of failed-bank assets to liquidate; as a result, the FDIC had to hire and train more personnel (FDIC Annual Report, 1991; 31-32).

The operating stress was heightened in 1989 when Congress gave the agency oversight responsibility for resolving the savings and loan crisis, and management responsibility for the new Savings Association Insurance Fund (to replace the insolvent Federal Savings and Loan Deposit Insurance Fund); the same legislation renamed the Deposit Insurance Fund, the Bank Insurance Fund.(2) By 1991, the FDIC projected a first-time deficit of $7 billion (Konstas, 1992; 15).

In one decade, the FDIC's workload, and the conditions under which it operated changed dramatically. What was once a relatively obscure "sleepy" existence was crashed by fiscal stress and intense political scrutiny. Obvious parallels were made to the savings and loan crisis, and the potential for a $100 billion taxpayer bailout of the banking industry brought the Congress, the administration, and the national media into the FDIC's daily operations. The FDIC responded with key management changes in order to guide the corporation from projected deficits to long-term solvency, and, hence, to reestablish some autonomy in managing its responsibilities. Management of bank resolutions and the FDIC's litigation activities (both directly related to liabilities placed on the BIF) were centralized, and the FDIC committed to conducting both activities in-house rather than rely upon private sector contractors. …

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