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Capital forbearance and thrifts: Examining the costs of regulatory gambling

Ramon P. Degennaro, James B. Thomson

This article estimates losses embedded in the capital positions of the 996 FSLIC-insured savings and loan institutions that did not meet capital standards on December 31, 1979. We compare the estimated cost of resolving the insolvencies of these institutions in 1980 with the actual failure-resolution costs for those that were closed by August 31, 1994. Our most conservative estimates, considering only the direct costs associated with delayed closure of only the 372 thrifts that were subsequently closed as independent institutions, show that these costs exceed estimates of the cost of prompt resolution by over 16 billion 1979-dollars. R. P. DeGennaro is an Associate Professor and the 1996–1997 Tennessee Banker's Association Scholar, and J. B. Thomson is Vice President and Director of Financial Services Research. University of Tennessee Federal Reserve Bank of Cleveland

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: article in journal •
published in
: 1996 •
is part of a publication
: Journal of Financial Services Research