High Yield Bonds: Issues Concerning Thrift Investments in High Yield Bonds : Report to Congressional Requesters

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The Office, 1989 - Financial institutions - 51 pages
 

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Page 1 - The Honorable Henry B. Gonzalez Chairman, Committee on Banking, Finance and Urban Affairs House of Representatives This report discusses issues associated with reforming the deposit insurance system.
Page 1 - The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation...
Page 7 - GAO PRODUCTS Abbreviations FRS Federal Reserve System FHLBB Federal Home Loan Bank Board FSLIC Federal Savings and Loan Insurance Corporation GAO General Accounting Office LBO Leveraged Buyout OCC Office of the Comptroller of the Currency ORA Office of Regulatory Activities SEC Securities and Exchange Commission S&P 500 Standard and Poor's index of 500 widely held common stocks WEFA Wharton Econometric Forecasting Associates...
Page 1 - Currency, the Board of Governors of the Federal Reserve System, the Federal Savings and Loan Insurance Corporation, the Federal Deposit Insurance Corporation, the...
Page 3 - ... downturn might increase bond defaults, especially for those companies issuing bonds as part of leveraged buyouts. For these reasons, thrifts need to have the expertise to invest in high yield bonds and should exercise caution in selecting and managing their portfolios. In January 1989, the Federal Home Loan Bank Board (FHLBB), the agency that regulates thrifts, took prudent steps to establish management and review standards for thrifts investing in high yield bonds. If properly understood and...
Page 45 - ... worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Page 44 - ... authorities, and limitations and identifies specific standards to be used in managing the portfolio. FHLBB'S guidelines also state that before investing in high yield bonds, the board should thoroughly analyze the risk and returns of these investments compared to alternate investments. It should also retain competent and qualified staff to monitor and analyze the portfolio on a continuous basis or retain consultants to manage the portfolio when in-house expertise is inadequate or the size of...
Page 2 - ... bond market. This final report responds to the Act's remaining requirements. It focuses on investment in high yield bonds by federally insured thrift institutions and also discusses state and federal laws regulating those investments and the relationship of high yield bonds to federal monetary policy. In 1977, the high yield bond market consisted primarily of bonds of companies that had fallen on hard times— called "fallen angels.
Page 5 - ... the Currency, the Federal Reserve System, the Federal Savings and Loan Insurance Corporation, the Federal Deposit Insurance Corporation, the Department of the Treasury, and the Department of Labor received a draft of this report for informal comment. Only the Federal Reserve and FHLBB had comments. At the Federal Reserve's suggestion, the report was revised to reflect the Federal Reserve's concern that the heavy reliance by corporations on debt financing, including high yield bonds, for mergers...
Page 3 - Mere second only to credit cards and ahead of residential mortgage lending, conaercial and consumer loans, and Treasury and investment grade bonds. The study also showed that credit losses on high yield bonds were greater than on other assets except for credit cards, but the higher losses were outweighed by higher yields. The study had certain data limitations and can not be used to predict future trends of asset risk and returns during a recession or sluggish economic growth.

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