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Forewordoreword FForewordoreword Shortly after her confirmation, then-Chairman Ricki R. Helfer directed the FDICs staff to undertake this study. She strongly believed that a careful examination and analysis of the banking crises of the 1980s and early 1990s would provide information that would allow the FDIC to better fulfill its mission. The banking problems of the period were of a magnitude not seen since the Great Depression and the advent of federal deposit insurance and therefore provide a unique win- dow through which we can study the causes of, and the regulatory and supervisory response to, sharply increased numbers of bank failures in a modern economic and banking environ- ment. There have, of course, been significant changes since the early 1990s in the perfor- mance and structure of the banking industry. Moreover, in the wake of the banking crises and subsequent legislative reforms, changes in the supervisory process have attempted to ensure improved monitoring of bank risk and more timely intervention in, and closure of, troubled banks. But not all the issues raised by the problems of the 19801994 period have been laid to rest. Moreover, the current improved condition of the industry and the supervi- sory changes of the late 1980s and early 1990s do not mean that banking problems cannot return sometime in the future. Although it is clear that the problems of the past are unlikely to be precisely repeated in the future, the study of these recent crises is nevertheless in- structive. At the very least, the history of the turbulent time in banking should teach us that we cannot afford to be complacent, and the FDIC hopes this study that glances backward will be helpful as we look forward. This study was prepared by the FDICs Division of Research and Statistics. Every ef- fort was made to ensure the accuracy of the information it contains and to provide an im- partial assessment of what occurred. As is the case with any history, however, the interpretations made by those who have written it are important to its structure and conclu- sions, and these interpretations are not necessarily those of the Federal Deposit Insurance Corporation. Andrew C. Hove, Jr. Chairman December 1997 AcknowledgmentsAcknowledgments As Chairman Hove has indicated in his foreword, in 1995 the Division of Research and Statistics was directed by then-Chairman Helfer to undertake an examination of the his- tory of the banking crises of the 1980s and early 1990s. The study was initiated in the be- lief that with the banking industry recovering, it was important to look back at the crises that had just passed and to assess what had taken place. The study would serve to identify areas where the agencys mission could be better accomplished in the future, and to learn from the unique experience that the 1980s and early 1990s provided to the regulators and bankers alike. This study was conducted under the direction of George Hanc, Associate Director, Division of Research and Statistics. Lee Davison was responsible for day-to-day manage- ment of the study and provided expertise on historical research methods. Jack Reidhill was integral to the process of planning and executing the study. John OKeefe made many important contributions concerning analytical methodology in all areas of the study. The primary authors of the study were: Chapter 1. The Banking Crises of the 1980s and Early 1990s: Summary and Implications George Hanc Chapter 2. Banking Legislation and Regulation Lee Davison Chapter 3. Commercial Real Estate and the Banking Crises of the 1980s and Early 1990s James Freund, Timothy Curry, Peter Hirsch, and Theodore Kelley Chapter 4. The Savings and Loan Crisis and Its Relationship to Banking Alane Moysich Chapter 5. The LDC Debt Crisis Timothy Curry Chapter 6. The Mutual Savings Bank Crisis Alane Moysich Chapter 7. Continental Illinois and Too Big to Fail Lee Davison Chapter 8. Banking and the Agricultural Problems of the 1980s Brian Lamm Chapter 9. Banking Problems in the Southwest Brian Lamm and John OKeefe Chapter 10. Banking Problems in the Northeast Brian Lamm and John OKeefe Chapter 11. Banking Problems in California Victor Saulsbury and Timothy Curry Chapter 12. Bank Examination and Enforcement Timothy Curry, with contributions by George Hanc, John OKeefe, Lee Davison, and Jack Reidhill Chapter 13. Off-Site Surveillance Systems Jack Reidhill and John OKeefe Many others on the staff of the Division of Research and Statistics provided extremely valuable research assistance, analyzed large quantities of complex data, and helped in other ways, both with production of the study and with the organization of the FDIC symposium on the study held in January 1997. Especially important research and analytical support were provided by Cynthia Angell, Jane Coburn, Joseph Colantuoni, Steven Guggenmos, James Heath, Robin Heider, Matthew Klena, Sandra Meyer, Lynne Montgomery, Lynn Shibut, Tara Sorensen, and Kenneth Walsh. Additional work was done by Joseph Bauer, Daniel Bean, Richard Brown, Timothy Critchfield, James Curtis, Jay Golter, Ronnie Kidd, Laura Kittleman, Rose Kushmeider, James McFadyen, Erin Robbins, Martha Solt, Mark Taylor, Ross Waldrop, Katie Wehner, Thomas Yeatts, and Jennifer Zanini. In addition, I want to thank Detta Voesar, Jane Lewin, and Christine Blair for their work in editing and reviewing the many drafts of each chapter, Geri Bonebrake for her work on graphics and layout, and Cathy Wright and Donna Schull for secretarial assistance in preparing the final manuscript. I also want to thank the reference staff of the FDIC Library, all of whom were unfailingly helpful in locating research materials for the study. The FDICs Division of Supervision was extremely helpful during the course of the study, and provided us with invaluable support. In particular, Joseph Ketchmark and Eric Dahlstrom provided both knowledge about the supervisory process and important research assistance, and Sidney Carroll, Michael Jaworski, and Robert Walsh took part in the inter- viewing of regulators and bankers for the study. I want to acknowledge the contribution of George French, now Deputy Director of the FDICs Division of Insurance, who directed the project in its initial stages. vi History of the EightiesLessons for the Future Several individuals, both inside and outside the FDIC, provided extremely helpful reviews of drafts of various chapters, and I would like here to thank Peter Elmer, Donald Inscoe, Barry Kolatch, Daniel Nuxoll, and Steven Seelig (from the Division of Research and Statistics), Frederick Carns and Gary Zimmerman (Division of Insurance), Lynn Nejezchleb (Office of the Vice Chairman), and Jesse Snyder (Division of Supervision) for their thoughtful readings. Other staff in both the Division of Supervision and the Division of Insurance read drafts of all the chapters and provided many helpful suggestions. In addition, I want to express my appreciation to David Boughton from the International Monetary Fund, Jennifer Eccles from the Office of the Comptroller of the Currency, Leonard Lapidus from the Department of the Treasury, and Kevin Kleisen from the Federal Reserve Bank of St. Louis for their reviews of specific chapters. Finally, I want to recognize the contribution made by participants at the FDICs symposium on the History of the Eighties, whose comments led to improvements in this, the published study. I would also like to thank our colleagues at the Office of the Comptroller of the Currency, the Federal Reserve System, and the Office of Thrift Supervision for their assistance in providing information without which the study could not have been completed. In particular, I would like to acknowledge Fred Finke, Robin Stefan and Sally Curran from the OCC and Stephen Schemering, AnnMarie Kohlligian, Carolyn Drach, and Susan Fleshman from the Board of Governors of the Federal Reserve for their help in assembling examination and/or enforcement data for the study. The FDIC would also like to thank those bankers in various regions across the country who generously took time to answer questions and give their views on the banking crises of the 1980s and early 1990s. William R. Watson, Director Division of Research and Statistics History of the EightiesLessons for the Future vii List of Tables and Figures Page Table 1.1 Bank Failures by State, 19801994 14 Table 1.2 Assets of Failed Banks at the Quarter before Failure, by State, 19801994 17 Table 1.3 Bank Failures and Growth Rates of Real Personal Income, by State, 19801994 20 Table 1.4 Bank Failures and Growth Rates of Real Personal Income, by State Recession Quartile 21 Table 1.5 Selected Financial Ratios 30 Table 1.6 Failure Rates, Newly Chartered and Existing Banks 32 Table 1.7 Failure Rates of Converted Mutual Savings Banks and Other Banks, Northeastern States 33 Table 1.8 Results of Bank Forbearance Programs 48 Table 1.9 Number of Bank Examiners, Federal and State Banking Agencies, 19791994 57 Table 1.10 Mean Examination Interval, by Initial Composite CAMEL Rating 58 Table 1.11 Failing Banks with CAMEL Ratings of 1 or 2, Two Years before Failure, 19801994 60 Table 1.12 Asset Growth Rates, Dividend Payments, and Capital Injections, All Banks with CAMEL Ratings of 4 and 5, 19801994 63 Table 1.13 Probability of Failure, Banks in the Highest Loans-to-Assets Quintile 73 Table 1.14 Probability of Failure for Low-Risk Banks (Banks Not in the Highest Loans-to-Assets Quintile) 73 Table 3.1 Production of New Office Space, 31 Major Markets, 19751994 145 Table 3.2 Major Loan Categories of U.S. Commercial Banks
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