Serious improvements in the banking industry were apparent in the years immediately following the implementation of FDICIA.
As a result, during downturns upgrades become less likely and absorptions become more likely. Many economists have studied the impact of FDICIA on the banking and thrift industries in the years since its passing. The wave of bank failures occurred due to a surge and subsequent collapse in industries including energy, agriculture and real estate.
The agencies must assign individual institutions to one of five capital categories — well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized — as determined by selected capital measures.
Meyer, and David C. Using data on the outcome of individual bank examinations, this paper documents that the frequency of rating transitions and the character of insolvency resolutions have changed substantially under FDICIA.
After the establishment of the Federal Deposit Insurance Corporation FDIC in the number of bank failures in the United States averaged roughly fifteen per year untilwhen the number of bank failures began to rise and reached roughly per year by the late s.