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Capital forbearance and thrifts: an ex post examination of regulatory gambling

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  • Ramon P. DeGennaro
  • Robert A. Eisenbeis
  • James B. Thomson
  • ary

Abstract

This paper estimates the losses embedded in the capital positions of the 996 FSLIC-insured savings and loan institutions that did not meet capital standards at the end of the 1970s. We compare the estimated cost of resolving the insolvencies of these institutions at the end of the 1970s with the actual failure-resolution costs for those that were closed by July 3 1, 1992, and the projected resolution costs for the remaining thrifts that are likely to be closed. Our results show that even when one considers only the direct costs associated with delayed closure of economically failed thrifts, these costs significantly exceed reasonable estimates of the cost of prompt failure resolution.
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Suggested Citation

  • Ramon P. DeGennaro & Robert A. Eisenbeis & James B. Thomson & ary, 1993. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Proceedings 421, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:421
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    Cited by:

    1. Kane, Edward J., 1995. "Three paradigms for the role of capitalization requirements in insured financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 431-459, June.
    2. William P. Osterberg & James B. Thomson, 1994. "Depositor preference and the cost of capital for insured depository institutions," Working Papers (Old Series) 9404, Federal Reserve Bank of Cleveland.
    3. James B. Thomson, 2010. "Cleaning up the refuse from a financial crisis: the case for a resolution management corporation," Working Papers (Old Series) 1015, Federal Reserve Bank of Cleveland.
    4. William P. Osterberg & James B. Thomson, 1999. "Depositor-preference laws and the cost of debt capital," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 10-20.
    5. Edward J. Kane & Min-Teh Yu, 1994. "How Much Did Capital Forbearance Add to the Cost of the S&L Insurance Mess," NBER Working Papers 4701, National Bureau of Economic Research, Inc.
    6. William P. Osterberg & James B. Thomson, 1994. "Underlying determinants of closed-bank resolution costs," Working Papers (Old Series) 9403, Federal Reserve Bank of Cleveland.
    7. Ramon P. DeGennaro & Larry H. Lang & James B. Thomson, 1991. "Troubled savings and loan institutions: voluntary restructuring under insolvency," Working Papers (Old Series) 9112, Federal Reserve Bank of Cleveland.
    8. William P. Osterberg & James B. Thomson, 1997. "Depositor preference legislation and failed banks' resolution costs," Working Papers (Old Series) 9715, Federal Reserve Bank of Cleveland.
    9. Ramon P. DeGennaro & Deborah L. Murphy, 2004. "Understanding 401(k) plans," FRB Atlanta Working Paper 2004-21, Federal Reserve Bank of Atlanta.

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