Academic journal article Journal of Accountancy

Treasury Defends FDICIA Bank Reform

Academic journal article Journal of Accountancy

Treasury Defends FDICIA Bank Reform

Article excerpt

When the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 was passed, many bankers denounced it as the epitome of regulatory burden, according to Richard Scott Carnell, assistant secretary of the treasury for financial institutions. However, Carnell told attendees at a conference on bank reform at the Brookings Institution, in Washington, D.C., that depository institutions have in fact prospered since FDICIA's enactment.

Commercial banks' return on assets had more than doubled since 1991, he said, and the return on equity rose to 14.4% in 1996 from 7.94% in 1991. He also said the percentage of commercial banks reporting net losses plummeted by two-thirds, while aggregate commercial bank net income rose to set new records from 1992 to 1995. "Not only has bank profitability increased but also failures and problem cases have fallen to a tiny fraction of prior levels."

The assistant secretary said the banking industry's prosperity also was due to favorable interest rates and the economic recovery of the last four years. The act was part of a process that began with the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and included the tightening of bank supervision in 1989, 1990 and 1991. …

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