Failed Thrifts:

Bank Board's 1988 Texas Resolutions

GGD-89-59: Published: Mar 11, 1989. Publicly Released: Mar 11, 1989.

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Pursuant to a congressional request, GAO reviewed the Federal Home Loan Bank Board's (FHLBB) assistance of 87 insolvent Texas thrifts during 1988.

GAO found that the FHLBB Southwest Plan for resolving the insolvent thrift problem: (1) focused primarily on Texas, since its insolvent thrifts constituted about 25 percent of all insolvent thrifts and held 34 percent of insolvent thrift assets; (2) consolidated the insolvent thrifts into 15 packages for sale, with Federal Savings and Loan Insurance Corporation (FSLIC) assistance in the form of notes and guarantees; and (3) did not provide for determination of the thrifts' true financial status until after the sale, since bidders were not informed of the specific thrifts within a package until final negotiations, and FSLIC did not examine the thrifts' accounts. GAO also found that the plan: (1) thinly capitalized thrifts and made them dependent on FSLIC assistance; (2) provided assisted thrifts with a competitive advantage over unassisted thrifts; (3) eliminated some costly duplications, such as redundant branch operations; (4) did not necessarily ensure the attraction of the most capable personnel to manage thrifts; (5) required thrifts to provide highly detailed business plans for asset management, although their effectiveness as management and regulatory tools was unclear; and (6) generally provided FSLIC an equity position in the consolidated thrifts and participation in certain tax benefits. GAO believes that: (1) the plan may not have been the most efficient resolution to the insolvent thrift problem; (2) oversight of the consolidated thrifts will be difficult; and (3) FSLIC may have underestimated the costs of its financial assistance.

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