In pushing to clean up the savings and loan mess, have federal regulators acted too hastily in declaring some thrifts insolvent? A federal judge in Topeka thinks so in at least one case. Last week he ordered the Office of Thrift Supervision to return control of an S&L to its original owners on the ground that the agency used “arbitrary and capricious” accounting methods to justify seizing the thrift, Franklin Savings (assets: $9.3 billion) of Ottawa, Kans.
The OTS claimed Franklin had “insufficient capital and operated in an unsound and unsafe manner.” But the owners of the S&L argued that the OTS made serious accounting errors in interpreting Franklin’s financial statements. Federal judge Dale Saffels ordered Franklin handed back to its owners, but regulators won a temporary stay of that order from a Denver federal appeals court. A victory for Franklin would undoubtedly hearten the 25 other S&Ls with similar suits against the OTS. And it would give new force to the contention that the agency has at times been overzealous in taking over thrifts that should have been left alone.
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