Resolving Texas Thrift Problems

GAO discussed the Federal Savings and Loan Insurance Corporation's (FSLIC) resolution of insolvent thrift institutions in Texas. GAO found that the current strategy for resolving insolvent institutions: (1) provided financial assistance in the form of notes and guarantees to attract prospective acquirers; (2) did not result in any liquidations, and prospective acquirers lacked any knowledge of the thrifts they were bidding on, because the Federal Home Loan Bank Board inconsistently applied its procedures for selecting purchasers; (3) provided acquirers 10-year notes, asset value guarantees, yield coverage, reimbursement for certain expenses and tax benefits, and excluded them from certain banking regulations; (4) allowed private investors to contribute minimum capital to acquire thrifts, and created small capitalized institutions, which could result in unsound management practices; (5) provided merged thrifts a competitive advantage over nonassisted depository institutions because they were heavily FSLIC-subsidized; and (6) provided acquirers substantial tax benefits while they received the full value of the acquired thrift's assets.