It follows as a corollary that the strength of the PCA framework depends crucially on the extent of regulatory powers that can be exercised by the banking regulator. While the intent of PCA is primarily remedial, it can also act as a deterrence and incentivise bank management and shareholders to contain risks so they do not end up in PCA in the first place.
And, by the virtue of being reasonably rule-based, PCA reduces the scope for discretion; like Odysseus, bank regulators tie themselves to the mast to evade the voices of the forbearance sirens. Reserve Bank’s Prompt Corrective Action (PCA) Framework The Reserve Bank’s PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the FDIC’s PCA framework.