Thrift Industry:

The Role of Federal Home Loan Bank Advances

GGD-89-123: Published: Sep 21, 1989. Publicly Released: Sep 21, 1989.

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Pursuant to a congressional request, GAO analyzed certain aspects of the Federal Home Loan Banks' Advances Program, under which the 12 district banks made collateralized loans to member thrift institutions.

GAO found that: (1) the asset portfolios of thrifts that heavily relied on advances were not very different from the asset portfolios of thrifts that only lightly depended on advances or did not use them at all; (2) thrifts' increased use of advances was associated with a decline in their holding of liquid assets as a share of total assets; (3) insolvent thrifts more heavily depended on advances than healthy thrifts, and weak and insolvent thrifts obtained a greater portion of their total liabilities from advances than did their healthy counterparts; (4) thrifts that failed between 1984 and 1987 increased their reliance on advances both as they approached insolvency and after they became insolvent, and also experienced rapid asset growth as their net worth deteriorated; and (5) no meaningful change occurred in the use of advances by acquiring thrifts in the quarter of acquisition for mergers and acquisitions taking place between 1984 and 1987.

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