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Banking Law Keyed to Barr, 3rd Ed.
Winstar Corp. v. United States
Citation:
64 F.3d 1531 (1995)Facts
During the savings and loan crisis of the late 1970s and early 1980s, many thrifts failed due to interest rate mismatches between their long-term, fixed-rate mortgage assets and their short-term deposit liabilities. To avoid paying out deposit insurance funds, federal regulators (the FSLIC and Bank Board) encouraged healthy thrifts to acquire failing ones through supervisory mergers. As incentives, regulators allowed acquiring thrifts to use the “purchase method of accounting” to record “supervisory goodwill” as an intangible asset that could be counted toward regulatory capital requirements and amortized over periods up to 40 years.
Glendale, Statesman, and Winstar each acquired failing thrifts under this policy. Glendale acquired Broward in 1981, recording $734 million in supervisory goodwill amortizable over 40 years. Statesman acquired four failing thrifts in 1988, recording $25.8 million in supervisory goodwill amortizable over 25 years and receiving $26 million in capital credits. Winstar acquired Windom in 1984, recording supervisory goodwill amortizable over 35 years.
In 1989, Congress enacted FIRREA, which established new capital standards for thrifts and severely restricted the use of supervisory goodwill and capital credits. As a result, Winstar and Statesman immediately fell out of compliance with the new capital requirements and were placed into receivership. Glendale remained in compliance initially but had to implement costly measures and eventually fell out of compliance in 1992.
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