Prompt Corrective Action

Prompt Corrective Action is a US federal law mandating progressive penalties against banks that exhibit progressively deteriorating capital ratios. At the lower extreme, a critically undercapitalized Federal Deposit Insurance Corporation (FDIC)-regulated institution is required to be taken into receivership by the FDIC in order to minimize long-term losses to the FDIC. The motivation behind the law is to provide incentives for banks to address problems while they are still small enough to be manageable. Spong summarizes the details.