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Banking Concept as a Successful Strategy

Commercial bank failures in the mid-to-late 1980s were the highest (well over 100 per year) for any period since the economic depression of the 1930s (FDIC, 1987, p. 7). Even more worrying was the fact that the FDIC continued to rate more than 1,100 American banks as problem institutions, with respect to assessments of capital, assets, management, earnings, and liquidity; all factors which could lead to the failure of a bank (Gilbert & Wood, 1986, p. 5).

The statistics cited above are all the more alarming because, between 1945 and 1981, commercial bank failures in the US averaged only six per year, and, during that time period, the banks that failed were usually not large institutions (FDIC, 1987, p. 10). In the 1980s, however, several very large banks failed (Stephens, 1986, pp. 59-61). The Bowery Savings Bank (New York) was the largest (assets of $5.3 billion). The Continental Illinois (Chicago) would have been an even larger failure, were it not for the fact that the FDIC put together a rescue package, which, in effect, made the federal government, through the FDIC, the major equity investor in that institution.

Some economists have suggested that excessive regulatory restrictions on competition held the number of bank failures to an undesirably low level between 1945 and 1981. This argument, of course, is rooted in the concept of economic efficiency, which tends to ignore normative values. It is quite easy for a positive-oriented economist without any first-hand knowledge of the effects of bank failure and economic collapse to make such pronouncements. It would be much more difficult, however, to justify such a position to a society which has lost confidence in its banking system as a result of policies based upon such a premise.

A failing economy in the early-1980s--particularly in energy, agriculture, and real estate--has been cited as the cause of many of the commercial bank failures since 1981 (FDIC, 1987, p. 7...

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Banking Concept as a Successful Strategy. (1969, December 31). In LotsofEssays.com. Retrieved 19:50, November 22, 2014, from http://www.collegetermpapers.com/viewpaper/1303941768.html
 
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