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7 S. Cal. Interdisc. L. J. 445 (1998-1999)
Capital Adequacy in Crisis: Towards an Optional Bank Deposit Insurance Regime

handle is hein.journals/scid7 and id is 451 raw text is: CAPITAL ADEQUACY IN CRISIS: TOWARDS AN OPTIONAL BANK DEPOSIT INSURANCE REGIME JAMEs B. RANSOM* I. INTRODUCTION In the banking arena over the last several years, the old question, Is regulation desirable? has gradually given way to a new question: Is regulation possible? The proliferating rate of daily transactions, the complexity of derivatives and the rampant popularity of securitiza- tion have combined to make obsolete many traditional bank examina- tion practices and analytical tools. Commentators proclaim that the birth of the fast bank has rendered impotent and obsolete the old supervisory approaches.' This skepticism, ironically, comes at a time when banking super- visors are under pressure to extend dramatically the scope of their regulatory activities. The failure to manage interest rate risk effec- tively is widely seen as a major reason for the collapse, unprecedented since the great depression, of many thrifts and banks in the United States during the 1980s.2 The resulting bloodbath eventually ban- krupted the Federal Deposit Insurance Corporation (FDIC) and led to the demise of the old Federal Savings and Loan Insurance Corpora- tion (FSLIC). Taxpayers were hit with hundreds of billions of dol- lars in bank rescue liabilities (the final bill is still uncertain). In the * B.A., 1985, New York University; M.A., 1990, University of California, Los Angeles; J.D., 1998, University of Southern California. 1. Regulating Fast Banks. Are Capital Rules Obsolete?, FIN. REaG. REP. (Financial Tunes Business Information, London), June, 1996. 2. In the seven years before federal deposit insurance, 1925-32, an average of 1,021 state and national banks failed each year. From 1934 to 1942, an average of 43 insured banks were resolved each year by the Federal Deposit Insurance Corporation (FDIC). From 1943 to 1980, an average of 4.8 insured banks were resolved each year by the FDIC. But in 1980, the FDIC took over 11 banks and 35 thrifts. By 1984, banks were failing at the rate of 80 a year; the failure rate remained over 200 a year from 1987 to 1990. See Peter P. Swire, Bank Insolvency Law Now that It Matters Again, 42 DuKE LJ. 469, 472 n.4, 473 n.9 (1992).

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