Magazine article American Banker

Vartanian's Tonic for S&L Industry; Urges Regulators to Adopt Gentler, Kinder Approach

Magazine article American Banker

Vartanian's Tonic for S&L Industry; Urges Regulators to Adopt Gentler, Kinder Approach

Article excerpt

Vartanian's Tonic for S&L Industry

American Banker: Was the 1989 thrift bailout bill a mistake? Thomas P. Vartanian: The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Resolution Trust Corp. were basically sound ideas. Where the train left the track is that the plan should have been phased in over a longer period - five, 10, or 15 years. AB: Why drag it out? TPV: It would have been more feasible in terms of the government's resources and capabilities, so that we didn't have 1,000 institutions and $500 billion in assets sitting there at one time. AB: Wouldn't losses have grown if the S&Ls were given more time? TPV: Forbearance has been a part of banking as long as there's been banking. What the FDIC and the FSLIC did in the 1980s was to manage the crisis.

Banking is a business of making illiquid loans. You can't mark them to market daily.

Regulators always have said: "Let's manage the rate at which they fall off the table, and don't let it exceed our capabilities."

Depending on where you are in a business cycle, at any one time the whole industry might be insolvent.

It's not a question of solvency on a mark-to-market basis. It's a question of long-term viability, liquidity, and recognition: How much weakness does it make sense for regulators to recognize? How much of the weakness has to be carved out during a cycle?

That changed hin 1989. All of a sudden, guys like Richard Breeden and others in the administration decided to regulate the business on a snapshot basis. …

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