In the banking business, the term "forbearance" has become so controversial that it is often called "the F-word," as if it were a subject not suitable for public discussion.
To those who argue for tough regulation and oversight, forbearance is the same as a traffic cop looking the other way when a drunken driver zooms past at 90 miles an hour and doing nothing to prevent an accident that's waiting to happen.
To many in the banking and real estate industries, forbearance is no different from an officer observing that most of the traffic on Interstate 95 is running a little above the speed limit and deciding not to try to ticket every driver.
Forbearance generally refers to any decision by banking regulators not to take action against a financial institution that is in trouble.
The practice first gained notoriety in Texas in the mid-1980s, when regulators allowed many banks and thrifts to remain in business even though the value of the loans and real estate behind them had dropped so low that the banks were insolvent.
By granting forbearance from their usual rules, the regulators gave the failing institutions and their borrowers time to try to work out their problems. In many cases, however, the sick banks got sicker, and all that forbearance accomplished was to delay the day of reckoning. In those cases, small losses became large losses as a result.
But in other cases, forbearance has saved many banks from failure and saved the government the cost of cleaning them up.
When farmland prices in the Midwest plummeted in the mid-1980s, Congress created a special forbearance program for farm banks. The banks were told they did not have to write off losses on land -- and loans secured by land -- that had fallen in value. Farmland prices eventually rebounded and the banks survived.
There are growing demands from the real estate industry to grant the same kind of forbearance on real estate loans. Real estate investors argue that if they are given a couple of years, the market will bounce back and they will be able to pay off their loans, including back interest, avoiding any losses to either the borrower or the bank.
But the bad experience in Texas has made regulators extremely cautious about granting forbearances. After several years, the Texas real estate market still is not back on its feet.
Today, regulators say they rarely grant forbearances to institutions that are insolvent -- meaning that if they sold everything they own, they would not get enough cash to pay off everything they owe to depositors and creditors.
But regulators concede that they are practicing limited forbearance with banks that continue to be l solvent but that do not meet minimum federal standards of financial health because they do not have enough capital.
Capital is the money that investors and other owners of a bank put up to cover potential losses.
Some financial institutions whose capital has been eaten away by bad loans and operating losses are being given time to raise additional funds.