This research examines the implications for financial accounting and financial reporting that have or are likely to stem from the savings and loan (S&L) crisis. Because of the seriousness of many charges laid against the accounting profession and against individual accounting firms, it might appear that the focus of this research would be only on auditing and reporting practices.1 In fact, however, changes in financial accounting practices for thrift institutions that are not directly related to charges of dereliction or fraud on the part of accountants have also stemmed from the S&L crisis.2 This research, therefore, addresses both types of change.
The S&L Crisis The savings and loan crisis was brought into sharp focus for the American people in the summer of 1989, when it had developed to a point where the Bush Administration and the Congress could no longer afford to behave as if the problem did not exist.3 By that time, hundreds of savings and loan associations were either insolvent, or were in danger of becoming insolvent in the relatively near future.4 Knowledgeable sources contended that the thrift industry as a whole was losing between $300 million and $400 million each month.
Although the crisis became apparent to the American public in the summer of 1989, it was full blown by that time, having developed into a serious problem by the mid 1980s. The problems being experienced by the thrift industry were attributed to a number of factors. Chief among those factors cited by the Bush Administration, the Congress, and industry regulators were (1) fraud, (2) imprudent loans to the small players in the oil industry, and to real estate developers in states heavily dependent upon the oil industry (which, in each instance, were severely and adversely affected by the collapse of world oil prices in the mid 1980s), and (3) a widening gap in the interest rate margin between earning assets and funding liabilities, which ...