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Article: Can a safety net subsidy be contained? (bank subsidy from deposit insurance)
- Article from:
- Economic Quarterly
- Article date:
- January 1, 1998
- Author:
CopyrightCOPYRIGHT 1998 Federal Reserve Bank of Richmond. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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In 1997 the U.S. Congress introduced legislation that would broaden opportunities for combining banks with nonbank financial and nonfinancial businesses.(1) There has been some concern, however, that such combinations would possibly allow a safety net subsidy that banks might receive to spill over to nonbanking companies affiliated with banks. In response to the concern, supporters of this reform have suggested various proposals to try to keep a subsidy within the bank itself.(2) Two mechanisms, in particular, have received considerable attention: the first would restrict nonbanking activities to bank holding company (BHC) subsidiaries and deny them to bank subsidiaries; ...