Opinion ID: 205913
Heading Depth: 2
Heading Rank: 2

Heading: The Savings and Loan CrisisFurther Developments

Text: In 1989, unsatisfied with the results of the regulatory response to the thrift industry crisis and in an effort to prevent the collapse of the industry, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (FIRREA). Among other significant changes, FIRREA required thrifts to maintain core capital in an amount not less than 3 percent of the savings association's total assets and defined core capital to exclude unidentifiable intangible assets such as supervisory goodwill. Winstar, 518 U.S. at 857, 116 S.Ct. 2432 (quoting 12 U.S.C. §§ 1464(t)(2)(A), (9)(A)). These new capital requirements had swift and severe impact upon institutions that had acquired failed thrifts, as they had relied on supervisory goodwill and capital forbearance granted them at acquisition. See id. Three thrift institutions created by way of supervisory mergers sued for damages on both contractual and constitutional theories. Id. at 858, 116 S.Ct. 2432. They argued that the Bank Board and FSLIC had promised them that the supervisory goodwill created in their merger transactions could be counted toward regulatory capital reserve requirements. Id. After reviewing the transactions, the Court agreed with the lower courts that the realities of the transaction favored reading those documents as contractual commitments, not mere statements of policy.... Id. at 863, 116 S.Ct. 2432. The Court therefore had no reason to question the Court of Appeals's conclusion that the government had an express contractual obligation to permit [the plaintiff thrifts] to count supervisory goodwill generated as a result of [their supervisory] merger[s] . . . as a capital asset for regulatory capital purposes. Id. at 864, 116 S.Ct. 2432 (internal quotation marks omitted). The Court also accept[ed] the Federal Circuit's conclusion that the Government breached these contracts when, pursuant to the new regulatory capital requirements imposed by FIRREA, 12 U.S.C. § 1464(t), the federal regulatory agencies limited the use of supervisory goodwill and capital credits as acceptable regulatory capital. Id. at 870, 116 S.Ct. 2432. The Court rejected all special defenses advanced by the Government in its effort to prevent enforcement of the contracts at issue, see id. at 860, 116 S.Ct. 2432, and affirmed the Federal Circuit's ruling that the United States was liable to the thrifts for breach of contract. Id. at 910, 116 S.Ct. 2432.