WASHINGTON (1/7/13)--The U.S. Government Accountability Office (GAO) last week released an extensive study detailing the causes and consequences of recent community bank and thrift failures that occurred between 2008 and 2011. The study does not address credit unions.
ommercial Real Estate (CRE) loan losses and the use of brokered deposits were common threads in many of the financial institution failures, the GAO study found. Failed banks "also had often pursued aggressive growth strategies using nontraditional, riskier funding sources and exhibited weak underwriting and credit administration practices," the report added.
Fair-value accounting has been cited as another potential factor in some failures, the GAO said. However, fair-value accounting losses in general "did not appear to be a major contributor" between 2007 and 2011, "as over two-thirds of small failed banks' assets were not subject to fair value accounting," the agency noted.
The report claimed that early recognition of loan losses could have alleviated some of the financial issues faced by banks. The GAO noted that a loan loss provision model proposed by the Financial Accounting Standards Board may help address the cycle of losses and failures that emerged in the recent crisis as banks were forced to increase loan loss allowances and raise capital when they were least able to do so.
The Credit Union National Association is analyzing the full 157-page report and will have more details to share soon.
For the full GAO report, use the resource link.