Summary: Pursuant to a congressional request, GAO reviewed the Federal Home Loan Bank Board's (FHLBB) use of forbearance in the thrift industry. Forbearance is the practice of giving a financially troubled thrift time to work out its problems, rather than closing or merging it.
GAO found that, from December 1982 to September 1986: (1) 445 thrifts received forbearance because they operated with capital levels below the regulatory 3-percent minimum; (2) FHLBB viewed forbearance as a reasonable policy that afforded a good probability of eventual recovery for problem thrifts; (3) FHLBB used capital augmentation and the Net Worth Certificate Program as its principal forms of forbearance for low net-worth thrifts; (4) the continued use of forbearance was due to the lack of Federal Savings and Loan Insurance Corporation funds to absorb losses associated with failing thrift institutions; and (5) because delayed regulatory action did not always help thrifts holding bad assets, FHLBB implemented a policy to exempt such thrifts from minimum capital requirements.
