Six, and finally, fraud. We all know what that is. At the time each of the four high-cost institutions collapsed, some observers considered the failure to be an anomaly. Alone, any of these characteristics do not necessarily portend failure. In combination, they may not necessarily doom an institution to failure.
Good times can keep a number of leaky vessels afloat.
But not all of them - as we have found at some cost. First, residual interests. You may recall that both First National Bank of Keystone and Pacific Thrift and Loan engaged in a significant level of asset securitization. In both situations, the financial institutions retained an interest in the securitizations they sold. The legal structure of the transactions greatly affected the realizable value of the residual assets.