Goodwill Generating Ill Will in Congressional Debate on Savings and Loans With AM-Congress Rdp

WASHINGTON (AP) _ No issue in the savings and loan debate has generated so much ill will as the question of goodwill.

President Bush's proposed S&L plan, the most expensive bailout in U.S. history, goes to the House floor this week, probably Wednesday, and legislators likely will spend most of their time debating what until recently has been an obscure accounting issue.

Here are answers to some commonly asked questions about goodwill.

Q: What is goodwill?

A: Goodwill is the difference between what a business, in this case a savings institution, is worth if shut down and liquidated and what it would fetch if sold as a going concern. Goodwill represents such intangible assets as customer loyalty and name recognition.

Q: Why is it important in the savings and loan debate?

A: President Bush wants to force S&L owners to risk more of their own money - capital - as a buffer between losses and the government deposit insurance fund. More than a third of the industry's $60 billion in capital at the end of 1988 consisted of goodwill, which becomes worthless when an S&L closes.

Q: Why do S&L supporters believe the institutions should keep their goodwill?

A: Most S&L goodwill is ''supervisory goodwill,'' meaning it was approved by federal S&L supervisors. Regulators OK'd the accounting break for institutions willing to take failed S&Ls off the government's hands in the early 1980s, giving them as long as 40 years to write the goodwill off their books. S&L executives complain that the government shouldn't go back on its word.

Q: What's the difference between normal goodwill and supervisory goodwill?

A: Goodwill usually is determined by what a willing buyer pays for a business on the open market. However, supervisory goodwill is the arbitrary amount assigned by regulators to make takeover deals work. In this case, the goodwill actually represents a hidden loss rather than something of value.

Q: Why do critics of goodwill think it's worth going back on the government's word?

A: Critics acknowledge that many of the institutions operating with goodwill are healthy in the sense that they are earning profits and most of their loans are sound. But, they say the institutions are dangerously vulnerable because the goodwill allows their owners to operate with little or none of their own money at risk. That's a situation ripe for abuse, critics argue, because those S&Ls would have little incentive to prevent them from speculating wildly with depositors' money. Those looking to phase out goodwill say it's better to be unfair to S&L owners than to be unfair to the taxpayers, who are picking up most of the 30-year, $285 billion bill for the S&L bailout.

Q: What are some of the compromises proposed on the goodwill issue?

A: The bill passed by the House Banking Committee and endorsed by the administration would phase out goodwill from tangible capital by 1995. Institutions short of capital because of goodwill would be allowed to apply to regulators to avoid the stigma of a supervisory agreement, but they would have to submit a business plan on how they plan to raise capital.

Rep. Henry Hyde, R-Ill., wants to give S&Ls with goodwill the right to appeal its loss through administrative proceedings. Critics, however, say that could delay tougher standards for up to 18 months.

Rep. James Quillen, R-Tenn., would simply require regulators to honor past agreements on goodwill and other legislators are proposing variations.