CAPITAL FORBEARANCE - DEPRESSION-ERA EXPERIENCE OF LIFE-INSURANCE COMPANIES

The multinational Sun Life Assurance Company was insolvent at marker v alues in the 1930s as a result of a diminution in the value of its hea vy investment in common stocks. Many of its competitors were also inso lvent when their asset portfolios are marked to market. industry-wide forbearance in the form of regulatory accounting window dressing misre presented true technical solvency and helped Sun Life and a number of its major competitors to remain in business during the Depression year s. We conclude that widespread capital forbearance, and nor portfolio diversification explains the survival of many large financial institut ions in the 1930s.