A 1991 law meant to restore the industry's health and avoid banking crises appears to be working, according to two economists. George Bentson of Emory University in Atlanta and George Kaufman of Loyola University in Chicago write that the Federal Deposit Insurance Corp. Improvement Act appears to be preventing banks from taking excessive risks and encouraging regulators to sanction financially troubled institutions. To ensure the law's continued success, regulators should require all banks to use market- value accounting and should raise minimum capital requirements, they write.

For a copy of "Deposit Insurance Reform in the FDIC Improvement Act: The Experience to Date," call 312-322-5111 or visit www.frbchi.org.

To ensure small businesses get credit, the government should encourage the creation of independent, de novo banks, according to three researchers.

"Unrestricted entry is generally good public policy," write Lawrence J. White of New York University, Robert DeYoung of the Federal Reserve Bank of Chicago, and Lawrence G. Goldberg of the University of Miami.

The three researchers find that banks make disproportionately more loans when they are first formed than after they have been in operation for several years. This is especially true for independent banks, they note. "Not all de novos are created equal," they write. "Banks that begin their lives as free-standing banks make substantially more small-business loans than do otherwise similar banks that begin as part of a multibank holding company."

For a copy of "Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation," call 212-998-0880. The study will be published shortly in The Journal of Banking and Finance.

A Cato Institute study questions whether federal agencies should issue guidelines and circulars instead of regulations. Robert A. Anthony, a professor at George Mason University School of Law, writes that Congress established explicit procedures agencies must follow before enacting rules. Guidelines, which are not subject to that process, should not be issued unless they interpret an existing law, he said.

"It is nothing short of autocratic or despotic for officials to take the unauthorized action of placing obligations on citizens without honoring the procedural requirements," he writes. "The courts should strike down such actions, which have no place in our system of limited government under the rule of law."

For a copy of "Unlegislated Compulsion: How Federal Agency Guidelines Threaten Your Liberty," call 800-767-1241 or visit www.cato.org.

Economic crises occur when the government tries too hard to protect investors from losses, according to a report by Robert Keleher, chief macroeconomist for Congress' Joint Economic Committee. The International Monetary Fund only exacerbates the problem by further ensuring that investors do not accept major losses during a crisis.

The only way to restore market discipline to the financial system is to minimize IMF interest-rate subsidies and require it to disclose more details of its performance, Mr. Keleher writes. This would force investors to accept losses, which would make them less likely to invest without regard to risk, he writes.

For a copy of "Financial Crises in Emerging Markets: Incentives and the IMF," call 202-224-5171 or visit www.house.gov/jec/. American Banker,

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