Regulatory Misconceptions in Pricing Thrift Conversions: A Closer Look at the Process

Abstract

This paper offers, for the first time, a critical evaluation of the appraisal equations that are used to estimate the value of a thrift, converting from a manual to a stock charter. The paper shows that these regulatory appraisal equations are fundamentally flawed and cause appraisers to use fictitious numbers in their analyses. The consequence of this is quite serious, since the appraisal industry used these flawed equations and appraised the value of 1600 converting thrifts to be $16 billion for conversions completed during the 1975-1994 period. The paper calls for a close congressional and regulatory scrutiny of the appraisal process in thrift conversions.

JEL Classification: G12, G28