A set of mandatory actions that regulators have to take in response to a depository institution‘s critical undercapitalization. This happens when capital ratio of a depository institution (such as a bank, a thrift, etc) falls below regulatory minimums. Prudential supervisors are required to quick action as necessary to stop undesirable activities by banks and, even more importantly, to discontinue the operations of banks that do not have sufficient capital. The action involves placing a depository institution into receivership within 90 days of the time when its capital falls below some predetermined level of capital adequacy (e.g. a positive book value level of 2% of assets).
Prompt corrective action is known for short as PCA.
