Germania Bank (a): The September Analysis and Associated Note on Net Worth Standards in the Savings and Loan Industry

Abstract

SUBJECT AREAS: Banking, Financial Institutions & Markets, Financial Management and Strategy, Business Policy, Business Ethics.

CASE SETTING: Although written in 1997, the case demonstrates, often in very personal terms, many of the basic questions facing the savings and loan industry in the mid to late 1980's. Political, regulatory, and macro-economic forces are complicating strategic and day-to-day operational considerations for this small and embattled savings and loan association.

This case and the associated "Note on Net Worth Standards in the Savings and Loan Industry", concern the attempt on the part of the regulatory agencies and firms in the industry to respond to massive macro-economic pressures that were brought to bear on the thrift industry, particularly savings and loan associations and savings banks, during the 1980's. The case "Germania Bank (A): The September Analysis", describes efforts by the management of Germania Bank, a small midwest savings association, to respond to many of the basic questions facing the industry at the time. The reader/student is presented with a series of considerations, actions, and consequences, each of which must be dealt with and each of which present crucial decision-making issues. Time and again Germania and its principal players are faced with "fight or flight" situations which must be addressed. A major issue in the case concerns the issue of loan loss reserves and the associated disagreement as to the level of losses that should be taken at, what ultimately turns out to be, a crucial point in the life of the institution and in the lives of the decision makers; this in the backdrop of a time period when the taking of loan loss reserves had suddenly become "fashionable" for financial institutions. The case and accompanying teaching note for the case reveal the fact that powerful macro-economic forces together with shifting federal policies play a major role in plunging a once proud neighborhood savings institution into economic distress and failure.

REQUESTS FOR COPIES: To receive a copy of this case, please contact James E. Fisher.

JEL Classification: G21, G28, G34