New Banking Plan Would Take ‘Good’ Out of Goodwill

Goodwill, a key issue in the debate over financial rules for savings and loan associations, is the value of a going concern over and above the value of its assets.

Many businesses assign a goodwill value to such things as the general good reputation of the company and its history in the community.

When healthy S&Ls; have taken over sick institutions in the past few years, some of them received direct financial assistance from the federal government and some goodwill certificates.

The federal regulators said this goodwill could be counted toward the capital an S&L; must have to assure investors and regulators that it is healthy. For example, an S&L; with loans of $1 million might have $200,000 in capital provided by its owners and a goodwill certificate of $100,000 from the government for part of the value of an acquisition.

This gives the S&L; capital totaling $300,000, or 3% of its assets. But the House Banking Committee says the goodwill must be gradually excluded. By 1995, under the committee’s plan, the S&L; would have to have $300,000 in cash from the owners--meaning that they must put up another $100,000.