Cite as: 518 U. S. 839 (1996)
Opinion of Souter, J.
accrual of capital gain from accretion resulted in a net paper profit over the initial years following the acquisition. See ibid.; Lowy 39-40.8 The difference between amortization and accretion schedules thus allowed acquiring thrifts to seem more profitable than they in fact were.
Some transactions included yet a further inducement, described as a "capital credit." Such credits arose when FSLIC itself contributed cash to further a supervisory merger and permitted the acquiring institution to count the FSLIC contribution as a permanent credit to regulatory capital. By failing to require the thrift to subtract this FSLIC contribution from the amount of supervisory goodwill generated by the merger, regulators effectively permitted double counting of the cash as both a tangible and an intangible asset. See, e. g., Transohio Savings Bank v. Director, Office of Thrift Supervision, 967 F. 2d 598, 604 (CADC 1992). Capital credits thus inflated the acquiring thrift's regulatory capital and permitted leveraging of more and more loans.
As we describe in more detail below, the accounting treatment to be accorded supervisory goodwill and capital credits was the subject of express arrangements between the regulators and the acquiring institutions. While the extent to which these arrangements constituted a departure from prior norms is less clear, an acquiring institution would rea-8 See also National Commission on Financial Institution Reform, Recovery and Enforcement, Origins and Causes of the S&L Debacle: A Blueprint for Reform, A Report to the President and Congress of the United States 38-39 (July 1993) (explaining the advantages of different amortization and accretion schedules to an acquiring thrift). The downside of a faster accretion schedule, of course, was that it exhausted the discount long before the goodwill asset had been fully amortized. As a result, this treatment resulted in a net drag on earnings over the medium and long terms. See Lowy 40-41; Black, Ending Our Forebearers' Forbearances: FIRREA and Supervisory Goodwill, 2 Stan. L. & Policy Rev. 102, 104-105 (1990). Many thrift managers were apparently willing to take the short-term gain, see Lowy 40-41, and others sought to stave off the inevitable losses by pursuing further acquisitions, see Black, supra, at 105.
853
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