Policymaking is forever a work in
progress, balancing the concerns of the regulated with the interests of
society, and making adjustments as new imbalances inevitably arise. Good policy
begins with good supporting legislation, and the process of making these laws
leaves behind a rich trail of lessons for the future. This article looks back
at an important episode involving the FDICthe creation and operation of the
Resolution Trust Corporation (RTC)and highlights the political give-and-take
that is often necessary to craft important legislation. The legislative history
of the RTC, reflected both in the consequences of the statute that created it
and in debates over subsequent legislation concerning the agency, was affected
by the unique use of taxpayer dollars to protect insured depositors at failed
thrifts. Readers should note, however, that
this article only tangentially examines everyday RTC operations, which often
(though not always) proceeded largely unaffected by the debates over the RTCs
management structure and funding that were central to the legislative
debate. When the RTC started its work,
hundreds of insolvent thrifts needed to be closed, their insured depositors
protected, and their assets returned to the private sector. Hundreds more would fail after the RTC
opened, and in all, the RTC would resolve 747 failed thrifts and dispose of
more than $450 billion in failed thrift assets before closing, a year earlier
than originally planned, in 1995. The
RTC successfully accomplished the broad public policy goals set out for it in
1989. The legislative story does, however, provide a window into understanding
the environment in which the RTC operated.
Readers interested in more details on the RTCs operations may want to
consult the FDICs study, Managing the Crisis: The FDIC and RTC Experience
19801994 (1998). The legislative
history of the establishment of the RTC, Politics and Policy: The Creation of
the Resolution Trust Corporation, appeared in Banking Review 17, No. 2
(2005). The continuation of that
legislative history, covering the years 19891993, is presented in two parts:
Part I appears here; Part II will follow in an upcoming issue. Editors note.
The statute that created the Resolution
Trust Corporation (RTC) in 1989the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, or FIRREAspelled out the agencys mandate with a
good deal of specificity, even providing a date for the agencys shutdown just
six years from its opening.1 Such
specificity, as well as the size of the initial funding ($50 billion),
indicated that the agency would get a good deal of congressional
attention. Nevertheless, given FIRREAs
detailed content and the short time horizon it set for the RTC, one might think
that a history of RTC-related legislation in the years after FIRREA would be
relatively brief. One would be
wrong. In each of the four congressional
sessions from 1990 through 1993, significant RTC legislation was proposed or
enacted: in 1991 two RTC laws were passed, and in 1993 another one was;2 in
1990 and 1992 Congress considered but failed to pass RTC legislation.
during the life of the RTC Congress repeatedly sought to address two main
issues. The first, and one that Congress
found particularly hard to confront, was that of additional RTC funding. It quickly became apparent that the $50
billion provided by FIRREA in 1989 would prove inadequate. And when Congress did muster the political
will to appropriate more funds (twice in 1991), those funds, too, proved
insufficient (according to estimates at the time). Legislation providing still more funding did
not pass until 1993. The second main
issue that Congress repeatedly sought to address was that of the management and
operation of the RTC. This broad issue
encompassed a whole range of smaller ones, including management structure,
methods and speed of disposing of assets and resolving failed institutions,
contract oversight, provision of affordable housing, and the hiring of minority
firms to do RTC work. These issues of
management and operations were debated in the context of each major bill.
leading to the passage of FIRREA had not been marked by overt partisanship
(except for the arguments over budgetary treatment of RTC funding). Once the RTC was in existence, however, it
was a highly visible part of the George H. W. Bush administration and a target
for congressional critics, most often from the opposing party. A year after the
RTC had been created, one observer noted that the RTC cant make a move
without somebody in Congress taking a shot at them . . . its like being in a
giant fishbowl where people not only look at you, but they line up along the
sides, take harpoons, and start throwing them at you.3 By 1992, the unpopularity of voting funds for
the RTC meant that it had become hard to get even Republican support for the
RTCs funding needs, a situation exacerbated by the election of a Democratic
president in 1992. But although the
debates on proposed RTC legislation were often highly politicized, they were
also substantive and demonstrate that Congress was attempting to make major and
minor adjustments in an agency with vast responsibilities that had been started
from scratch in 1989 and was expected to operate effectively under intense
Post-FIRREA Issues (19891990)
The RTCs early
operations (198990) were of great interest to many in Congress and generated
much activity both in the legislature and within the administration. Although none of the legislation proposed
during this period succeeded, the debates as well as the failed bills they
accompanied contributed to the substance of the legislative changes that would
be enacted in 1991 and illustrate the terms of the debates about the RTC
three areas were most important: the first was general and multifaceted,
combining concerns about the perceived slowness of the RTCs startup with
concerns as to whether the bureaucratic structure outlined by FIRREA would be
able to handle its appointed task. In a
sense, this first area could be taken to include almost any of the agencys activities,
but generally the concerns focused on the speed and manner of resolution and
asset disposition. The other two areas were quite specific and dealt mainly
with moneythe bottom line of most of the debates over the RTC. The first of these was the need to provide
the agency with working capital, and the second was the need to provide the
agency with additional loss funds as it became clear that the money allocated
under FIRREA would prove insufficient.
(Both of these issues became embroiled in the partisan debate over the
federal budget at a time when the deficit was a political lightning rod.)4 Because the inadequacy of loss funding was
not of immediate concern in the early months of the RTCs existence, this
section will examine only the early criticisms of RTC operations and the
debates over the provision of working capital.
whether the RTC was moving fast enough both to resolve institutions and to sell
assets began almost immediately.
Expectations for the RTC were highunrealistically so. The decision to confront the thrift crisis
had been announced in February 1989; the concept of the RTC had therefore been
present for six months before its August creation. Somehow, despite the obvious
challenges facing it, many observers felt that results should have been
expeditious.5 The RTCs management knew
this. During deliberations in August
about some of the first resolutions of failed institutions, RTC Chairman L.
William Seidman noted, I think the worst thing we can do now is not move
forward quickly. ... Mr. Brady [Nicholas
Brady, secretary of the treasury] has said
... that were going to do them
tomorrow, and if we dont, thats big news, ... the kind of news the White
House doesnt like to hear.6 But
although the FDIC, in consultation with other agencies, had been readying
itself for the task of taking on the RTC, not until July was its precise role
clear.7 In any case, expecting the RTC
to simply start work as if it had been in existence for years was
unrealistic. As former FDIC Chairman
William Isaac would note before Congress in the spring of 1990, The scale of
the RTCs undertaking is breathtaking.
The RTC is in the process of creating, from scratch, virtually
overnight, the worlds largest financial institution, all of whose assets are
troubled. Isaac believed it would take
the better part of a decade for the RTC to accomplish its goals.8
In terms of
resolutions, between August 9 and September 30 the agency resolved 24
institutions, but during the final quarter of the year it resolved only another
13, and during the first quarter of 1990 only another 15. To put this in
perspective, by August 8, 1989, the day before the RTC came into existence,
there were 262 failed thrifts in conservatorship that the agency would inherit
and an additional 140 institutions would fail by the end of the first quarter
of 1990.9 (See Figure 1 for the number of conservatorships and resolutions
during the agencys existence.) By early 1990, the volume of criticism,
particularly from House Democrats, had begun to rise significantly. Rep. Bruce Vento said he thought the RTC had
failed to hit the ground running and it was not too early to suggest that they
should be doing more. He noted that the
37 resolutions carried out in 1989 had been deposit sales, not really the sale
of institutions, and they were not very complicated deals.10 Rep. Frank Annunzio stated that the RTC has
spent more time posturing for more money than in using what they have.11
No matter where
one stood with regard to the RTCs performance, it was clear that the agency
was not resolving failed thrifts at a rate that kept pace with the growing
number of thrifts in conservatorship (institutions in conservatorship still
operated, but were under RTC control).
The RTCs most obvious response to the criticism was the so-called
Operation Clean Sweep announced by Seidman in March 1990. Designed to assuage critics, restore the
RTCs credibility in the eyes of potential acquirers, and demonstrate progress,
this ambitious plan called for 141 resolutions by the end of June. The agency exceeded this goal, resolving 155
institutions with total assets of $44.4 billion in just three months.12
Clean Sweep might have mollified critics of the resolution process, it made the
asset-disposition part of the agencys task more difficult by adding
substantially to the RTCs inventory of assets, particularly problem
assets. And in fact, the agencys
strategy for disposing of its inventory at first (and also later) provided
fertile ground for disapproval. During
the debate on passage of FIRREA, most concerns had centered on the idea that
the RTC would move too quickly to sell off assets (particularly real estate),
swamping an already severely depressed market, especially in the
Southwest. These fears persisted during
the agencys early days. Sen. Phil Gramm
of Texas stated that if distressed thrifts assets were disposed of too
quickly, the effect might be to bankrupt every healthy bank and thrift left
[in the Southwest].13 The RTC was
certainly aware of these fears. RTC
Board member Robert Clarke, during a discussion in October 1989, noted that
there has been so much sensitivity to this issue of dumping. And people are going to be, as you know all
too well . . . really be looking . . . closely.14
Once the RTC was
operating, however, the fear of dumping was gradually replaced by the fear that
the RTC was not moving quickly enough to divest itself of the assets of
resolved institutions.15 By mid-1990,
with the inventory of assets rising and the prospect of more to come, many
people realized that if the agency did not move assets quickly, it would never
finish the job. In addition, people had
come to believe that the only way to return real estate markets to normal was
to get RTC properties back into the private sector. Ken Guenther of the Independent Bankers
Association noted, The attention has shifted from dumping to speeding up the
disposition process . . . in some markets, nothing will stabilize until we get rid
of the overhang of RTC properties.16
Texas congressmen were complaining that the RTC was moving too slowlyat
a snails pace.17
As the need for
swift action began to outweigh fears of dumping, constraints that FIRREA had
put on the RTC (and especially the agencys interpretation of the requirements
for selling assets in distressed areas)18 came under fire. In June 1990, with the expected costs of the
thrift rescue escalating and the argument becoming more partisan, House
Democrats condemnations of the agencys methods became more pointed. Rep. Vento told Treasury Secretary Brady,
There is an appearance to many of us that the RTC is floundering and the
oversight board isnt doing what it can.
Its simply not moving the assets.19
To facilitate speedier
sales of assets, the RTC began to alter its asset-disposition policies. For example, in early May 1990, it decided to
adopt a more flexible approach to real estate sales in distressed areas.20 By June it began to move toward a policy of
using bulk sales to rid itself of at least some of its asset inventory. Though there was opposition to this strategy
as creating a lack of competition among bidders (and as handing sweetheart
deals to large investors), possibly lowering asset sale prices because of
attendant discounts, and possibly hurting some real estate markets, such
concerns were largely trumped by the desire to get assets moved out of the RTC
quickly.21 Undoubtedly the changes were
to some extent a response to clamor in Congress, but they were much more a
function of the newly created agencys finally getting some experience under
its belt and responding to the marketplace.
In the area of asset-disposition policy and practice as in the area of
resolutions, demonstrable change was a response both to public debate and to
and asset disposition were embroiled in debates about the RTCs management
structure, which for Congress became one of the more contentious elements of
the thrift cleanup. The most visible issue was the relationship (as created by
FIRREA) between the Oversight Board and the RTC. Though ostensibly the two bodies worked
together, they had different purposes.
The RTC was an operational entity, run by its own board of directors, with
a mission primarily of resolving institutions and selling assets. The Oversight Board was a policy and watchdog
entity with a mission of setting the general policies under which the RTC would
accomplish its goals, controlling the purse strings, and keeping watch on the
use of taxpayer funds; it was not to intrude too deeply into RTC
operations.22 Seidman at one point
described the RTC as the body and the Oversight Board as the mind. On the surface this division of function
might seem fairly straightforward: the Oversight Board would set policy, and
the RTC, working within those policies and therefore in accordance with the
Oversight Boards directives, would do its job.
The operational reality, however, was much more complex.
complicating factor was the existence of two sets of personnel with different
viewpoints and experience. (It should be
noted that this discussion is based primarily on certain RTC materials and the
public debate; unfortunately, equivalent internal Oversight Board materials were
unavailable. Oversight Board members and staff doubtless held their own views
on the Boards relationship with the RTC.) The RTC was essentially run by FDIC
staff and executives while the Oversight Board had a strong Treasury Department
component and so represented the administrations point of view. The FDIC was an independent agency with
experience in financial institution failures and resolutions, and its board was
accustomed to being able to adjust policies to suit its needs. Moreover, the FDICs insurance fund came not
from the taxpayer but from premiums paid by banks. The Oversight Board members, who had other
time-consuming posts, would be able to spend relatively little time on RTC
business, and both they and their staff, though experienced in banking,
housing, or real estate development, had to come to grips with a new
organization.23 However, with
substantial taxpayer money involved, it was appropriate for the administration
to be involved in how the RTC accomplished its goals.
bifurcated structure was a recipe for conflict.
Each entity might genuinely believe it was pursuing the best course
available, but the two did not necessarily share a single vision. What the Oversight Board perceived as a
general policy, the RTC might see as an operational matter.24 There was constant tension over who had the
power to make decisions and concern about perceptions of who was responsible
FIRREA demanded that the Oversight Board create general policies, RTC
executives thought the Oversight Board was attempting to write a set of rules
for a process that was ill-suited to being governed by rules.25 In these executives experience, judgment had
to be applied in the making of decisions, but the politics of the S&L
cleanup had led to statutory mandates as well as Oversight Board authority
constraining the ability to make such judgments. Moreover, the RTCs executives believed that
the need for the Oversight Board to overcome the difficulties of starting from
scratch further complicated matters. The
RTC would, of course, have to follow Oversight Board policy (although the
agency could and did seek to change that policy); Seidman warned RTC staff
specifically not to exercise judgment but to follow the rules. Although FDIC staff had previously had more
flexibility, Seidman noted, we didnt [previously] have a statutory standard and we didnt have anybody
upstairs to raise the issue about how we were operating.26
RTC began its work, the officials involved sounded conciliatory notes about
this somewhat cumbersome relationship.
Treasury Secretary Brady said it would be a cooperative effort. Seidman publicly predicted a good working
relationship with the Oversight Board.27
Tension, however, was present from the outset. The RTC wanted to move immediately to sell
five institutions but the Oversight Board prevented it from doing so, believing
that the transactions were too complicated inasmuch as many key policies had
not yet been formulated.28 RTC Executive
Director David Cooke stated that the Oversight Board had asked the RTC to stay
with fairly simple, small transactions until policies could be determined; he
said, diplomatically, that he did not mind this since the organization was just
getting on its feet.29
Clarke asked in August 1989 about the relationship with the Oversight Board,
Seidman stated that it was taking a lot of work and that
Weve time and time again gotten to the brink with them where they say
they dont have this or they need that in order to give us money. And I have instructed the staff at that point
to tell them that we are closing shop and going home. And when they have money, well go back in
business. And so far theyve given us
the money. One of these times they
Seidman did say that he and William Taylor,
the Oversight Boards acting vice president for finance and administration,
were attempting to create practical solutions to their problems.30 Nevertheless, in the matter of funds disbursement,
the Oversight Board wanted to keep the shortest possible rein on the RTC, a
policy that Seidman criticized openly just weeks after the RTC began
operations, complaining that John Robson, deputy treasury secretary and the
acting president of the Oversight Board, essentially had veto power over RTC
management decisions because of his control over funding. In turn, Treasury was reported to be angered
by public discussion of disagreement, and one commentator noted that the
Oversight Board felt exposed, since it had ultimate responsibility for handing
money over to the RTC.31
Although Nicholas Brady called the troubles
mere healthy friction that would occur in any startup operation, others
thought the system was too complex; in their eyes, the zeal to have prudent
supervision . . . meant that the buck
stops everywhere. Daniel Brumbaugh, who
had been an economist at the Bank Board, said the structure led to artificial,
arbitrary outcomes.32 Rep. Vento described
the RTC and the Oversight Board as operating for the past two months by the
collective seat of their collective pantsa management style that, he claimed,
had not worked.33 Congressmen such as
Vento and Annunzio criticized initial drafts of the Oversight Boards strategic
plan as vague.34 The General Accounting
Office (GAO) also found the early version of the plan too amorphous.35 The unfavorable perceptions were reinforced
by the inability of the RTC and Oversight Board to decide on the method for
raising the RTCs working capital (discussed in detail below).36
Kearneys appointment as Oversight Board president in October was meant to
bring to the Oversight Board someone who had experience in both private sector
real estate and government and who would be able to repair the frayed
relationship between the RTC and Treasury.37
However, Kearney resigned after only four months, citing a
misunderstanding on both his and the Treasurys part about the scope of the
powers vested in the position. This was
generally taken to mean that Treasury had never given Kearney any real
authority and that he found the situation unacceptable.38 Seidman noted that Kearney was replaced on an
interim basis by William Taylor, who was able to get much more done not only
because he was an experienced government official but also because, after
Kearneys resignation, Treasury had to be far more accommodating to avoid the
repercussions from a second departure.39
the end of 1989, largely as a result of the bifurcated management structure,
the RTCs operations were described as paralyzed. Noting that only 37 thrifts had been resolved
since the agency had opened for business and that only 3 small thrifts had been
resolved in the previous 10 weeks, one observer blamed much of the agencys
inaction on the Oversight Board, which, in its zeal to avoid even the
appearance of impropriety in cutting deals, . . . has thrown out all the
bargaining tools developed over the years [by the FDIC]. An attorney dealing with financial
institutions predicted that it would take several months at least before the
Oversight Board might liberalize the terms of deals, several more months before
the terms under which assets could be sold would be determined, and then a
couple of more months before the RTC would be able to react to those rules and
put significant numbers of deals into the pipeline.40
January, public criticisms of the management structure became more and more
numerous. Auburn University economist
James Barth, who had been the chief economist at the OTS, said the S&L
cleanup was quickly unraveling. Rep.
Henry Gonzalez noted that key positions remained unfilled and important
policies unannounced. Vento called for
the Oversight Board to be abolished because it was too cumbersome. Another
commentator called the structure an absolute absurdity and argued that split
responsibility meant no responsibility.41
Inside the RTC, there was clearly a certain amount of frustration with
the situation. Seidman remarked that he
thought it was the RTCs job to run the cleanup and the Oversight Boards to
finance it, and that the Board should tell the RTC what they wanted, and the
RTC would do it. We cant both have the
responsibility and not have the responsibility and so were sitting here
thinking up ways to get around the fact that they dont know how to provide
split between the RTC and the Oversight Board was evident in congressional
oversight hearings in January 1990. When
Rep. Chalmers Wylie asked Seidman and RTC Executive Director Cooke if the
Oversight Board was necessary, Seidman replied that when originally consulted
about the structure, he had suggested either setting up a new and separate RTC
with its own board answerable to the administration or allowing the FDIC
to take over the cleanup, with the inclusion in FIRREA of whatever constraints
were considered necessary. Seidmans
implication was that the present structure was lacking. Cooke answered: What we need at the
operational arm is a fully operational board.
We need a board that is available, accessible, and that we can exchange
views and get decisions made. Seidman
noted that people at the Oversight Board had tried hard to cooperate and that
Kearneys performance was excellent, but asked, Where did the buck stop in
this whole process? If you can tell me,
then we will know how to get it done, but at the present time it is almost
impossible for David [Cooke] to know where to go and how to get operational
decisions. After this exchange, Wylie
noted that he had asked the question somewhat facetiously, but apparently it
was a better question than I first thought.43
During the following week, Robson told the Senate Banking Committee that
he knew of no instance in which the working relationship between the Oversight
Board and the RTC has thwarted progress toward the common goal of carrying out
the mandates of FIRREA.44
two weeks later, Kearney resigned.
According to Rep. Charles Schumer, his departure suggested that initial
startup frictions had not diminished.
According to Vento, his leaving confirmed Ventos belief the Oversight
Board should be abolished. Former FDIC
Chairman Isaac argued that the policies set by the Oversight Board had made
deals uneconomical for bankers and that much of the problem had to do with the
multiplicity of management layers.45 Gonzalez
added his voice to those calling for change, noting that disarray and
indecision were now publicly evident.46
The Wall Street Journal ran an editorial suggesting that at the end of
the day, Treasury has to get out of the way and let someone make
decisions.47 David Cooke reiterated
that he had had a good relationship with Kearney and that [he and Kearney] had
worked with Oversight Board staff to produce recommendations, but where it
goes from there is a mystery.48
the early record eventually resulted in proposed legislation designed to change
the management structure put in place by FIRREA. In the immediate aftermath of Kearneys
departure, two bills were introduced, one in the Senate and one in the
House. Sen. Robert Kerrey, who had
attempted to change the makeup of the Oversight Board during the FIRREA debate,
had reiterated his concerns in October.
He maintained that the Oversight Boards appointed officials were too
busy with their governmental duties elsewhere to properly oversee the
RTC.49 His solution to the management
problem was to create a new single board of governors to manage the RTC. It would replace both the Oversight Board and
the RTC Board of Directors and would have nine members, five of whom would be
independent members nominated by the president and confirmed by the Senate; the
others would be members of the current Oversight Board and the Chairman of the
FDIC. Although in March Kerreys bill
was also introduced in the House (by Rep. Peter Hoagland), nothing came of
it.50 Vento, head of the House RTC task
force, also introduced a bill to alter the management structure. His bill would abolish the Oversight Board
and transfer its powers to the FDIC Board of Directors.51 This bill, too, failed to get anywhere, but
clearly the RTCs management structure was on its way back to the drawing
reason Congress did not address the issue at this time was that just before
Kearneys resignation, Senate Banking Committee Chairman Donald Riegle said he
thought FIRREA needed to be given time to work and he had no intention of
opening it back up.53 Even after
Kearney left, it was reported that Congress was unlikely to take up any
structural change, and Seidman discounted the possibility of such change,
noting that Bush would veto any bill incorporating a change of that
nature.54 In addition, by late March,
Treasury officials were reported as having said that relations between the RTC
and the Oversight Board had improved markedly.
They ascribed the improvement to Seidmans recognition that criticism of
the Oversight Board eventually sticks to him as well.55 As noted above, the improvement was certainly
partly the result of William Taylors having become acting Oversight Board
president in place of Kearney.56 The
RTC, Treasury and the Oversight Board were likely all chastened by the
consistent criticism of them in the public debate. The structure of RTC management and its
perceived effect on RTC performance would, however, return to the congressional
agenda repeatedly as Congress debated RTC operations during the next several
The Working Capital Problem
The $50 billion
that FIRREA provided to the RTC were loss funds, funds to make insured
depositors whole for losses suffered by insolvent institutions. FIRREA was silent about working capital, but
the need for it was obvious: the RTC would incur carrying costs associated with
the assets of failed institutions until those assets could be sold. The money borrowed for working capital would
eventually be repaid from those asset sales. The requirement for working
capital had been communicated to Congress before FIRREA passed.57 Just several weeks after the RTC began its
work, David Cooke noted that the Oversight Board was investigating setting up a
financing vehicle.58 In October, Seidman
told the Senate Banking Committee that the RTC would require working capital so
that it could continue resolving institutions without resorting to uneconomic
asset disposition policies. He
emphasized that the working capital borrowings would in no way add to the $50
billion provided for loss funds and that any working capital program would
still fall under the obligation limit imposed by FIRREA (discussed below) and
would therefore be determined by the underlying value of the RTCs
assets.59 The subject of working capital
was discussed again before the congressional RTC task force in October and
November, when Oversight Board members, RTC officers, and the GAO all
emphasized the need for it.60
Although the need
for working capital was straightforward, finding the means to provide it became
highly politicized. As a result, six
months would pass before the issues surrounding this funding would be resolved.
To understand the debate, one must place it
within the larger picture of the budget.
FIRREAs provision of the RTCs loss funds had been marked by a partisan
struggle over their budgetary treatment.
Democrats had argued for all loss funds to be from Treasury
appropriations. The administration
preferred an off-budget financing method.
Spending funded by appropriations would increase the reported budget
deficit and make it more difficult to meet the Gramm-Rudman-Hollings (GRH)
deficit reduction laws targets; spending funded off-budget would not.61 In
the end, FIRREA represented a compromisewith $18.8 billion in on-budget
Treasury appropriations and $30 billion from bonds issued by the off-budget
Resolution Funding Corporation (RefCorp). Another $1.2 billion was funneled
from the Federal Home Loan Bank System through RefCorp to the RTC. Some who were involved in the process
believed the Democrats saw RTC working capital as a way to try to force the
president to abandon his promise not to raise taxes,62 although the debate was
also about the transparency of the budget. But the delay in finding a solution
could also be ascribed to the Bush administrations anxiety at being seen as
directing increased monies to the RTC and to its desire to at least moot the
idea of using an off-budget vehicle to fund working capital in order to avoid
further constraints on the administrations spending choices during this period
of high deficits. In the end, it turned out that neither Congress nor the
administration preferred having the RTC as a constant companion to budget
The Debate about Method
was never publicly forthcoming about the methods it was considering using, but
it was rumored that one possible way to provide working capital was to create a
Resolution Bank. Some Democrats in Congress
thought the administration wanted to create another RefCorp and this belief led
to the introduction of the first post-FIRREA RTC-related piece of legislation:
the Federal Agency Debt Management Act (referred to below as the Stark bill).63 The billwhich was aimed specifically at the
RTC even though the agency was never mentionedwould have prohibited federal
agencies established after December 31, 1988, from incurring any financial
obligation other than authorized borrowings from the Treasury. The bill was intended to underscore
congressional Democrats opposition to another off-budget funding entity. Treasury Assistant Secretary David Mullins
told Congress that although FIRREA had no explicit plan for working capital
borrowing, the question had been discussed with Congress during the debate over
that law. (FIRREA in fact authorized such borrowing
concern about it had engendered Rep. Gonzalezs insistence on an obligations
limitand the method of borrowing had been left open to provide the RTC with
maximum flexibility.)64 Mullins argued
that the Stark bill was unworkable and would interfere with routine RTC
transactions in offering guarantees; in addition, since FIRREA provided only
for $5 billion in RTC borrowing from the Treasury, the bill would apparently
limit working capital to that very insufficient amount.
Mullins also noted
that the administration believed the budgetary treatment of working capital
should wait until some plan was chosen but that nevertheless it would be
improper to distort the budget by ballooning budget expenditures in early
years with amounts that will be fully repaid with budget receipts in later
years. Moreover, recording RTC working
capital spending on-budget could have perverse effects. Working capital borrowing (after fiscal year
1990)65 would count as budget outlays and potentially force budget cuts
elsewhere, while the proceeds of asset sales in the later years would reduce
net budget outlays, possibly allowing higher levels of government spending in
those years than would otherwise be the case.
Although there would be no net difference in spending over time, placing
RTC working capital on-budget could arbitrarily affect the timing of government
spending. Lastly, he noted that scored
on-budget, RTC operations might become the largest single discretionary
determinant of budget results, making the RTC even more political. Congress, Mullins said, should think long
and hard before allowing the budget process to drive the case resolution and
asset disposition process. The
administration obviously opposed the bill.
Seidman said the agency would require at least $50 billion in working capital,
noting that working capital would smooth out the timing difference between the
RTCs cash outlays and its cash inflows and that it was also needed to replace
high-cost funds as a way to lower resolution costs. The alternative was to borrow using insured
deposits at a much higher cost.66 Other
alternatives to raising working capital, such as using whole-thrift transactions
or slowing the pace of resolutions to correspond to asset sales, would also
prove costly. He reiterated that because
the bill prohibited any financing other than through the Treasury but provided
no additional Treasury financing beyond FIRREAs $5 billion, in practical terms
the bill would simply prevent the RTC from raising adequate working
Whereas the RTC
wanted working capital simply so the agency could do its job, politics played a
significant role in the debate between the administration and congressional
Democrats. As Rep. Stark told Seidman, deposits in S&Ls had to be honored,
and the RTC would end up with large amounts of assets that no one wanted to see
dumped; working capital was therefore required.
But, he noted, We have some political differences that youre not privy
to or involved in.68 In mid-November
congressional Democrats and the administration agreed to postpone their
disagreements over the issue of working capital: the Oversight Board and the
RTC agreed not to seek to raise working capital during the congressional recess
and to create a plan in consultation with Congress in 1990; and for its part,
the House Ways and Means Committee agreed not to send the Stark bill to the
compromise did not, however, relieve the RTCs very real operational concerns
about a lack of working capital. By late
November, the agency was adhering to its schedule for resolutions but was
expected to have spent all the funds allocated to it for the fourth quarter and
also for the early part of the first quarter of 1990. There was some concern that unless an
agreement over working capital was arrived at quickly, the pace of resolutions
would be affected.70 By mid-December,
RTC management became even more concerned, for they had seen indications that
the RTCs lack of working capital and liquidity problems were now publicly
known and could have adverse effects, notably in the agencys dealings with
deposit brokers who might demand higher rates, particularly because they knew
the RTC could abrogate contracts.71
Seidman advised that the RTC should slow down its work and should not
count on getting any working capital until the end of the first quarter.
His prediction proved reasonably accurate.72
By early January
1990, the administration was narrowing down the potential mechanisms for
raising working capital.73 The creation
of another off-budget entity had been rejected, and administration officials
were suggesting a combination of Federal Financing Bank (FFB) borrowing and the
sale of short-term notes backed by S&L assets.74 Congressional Democrats supported only FFB
borrowing, and without a quick decision from the administration, they would
resume their push for the Stark bill. In
mid-January, despite Seidmans belief that the RTC had to slow down, the
Treasury contended that the RTC had sufficient funds to continue operations
through the second quarter, and the House Banking Committee reportedly remained
skeptical that the RTC needed more funds; one committee staff member suggested
that the agency simply use the $50 billion in appropriated loss funds, noting
cash is cash.75 At this point,
however, the RefCorp had sold only $4.5 billion in bonds in October, and though
it was to sell another $5 billion on January 17, it would need four additional
offerings over the following year to raise all the funds provided for in FIRREA.76 (See Figure 2.) As William Roelle (Director of the RTCs
Resolutions and Operations Division) noted, Cash is cash [only] when you get
it.77 Shortly thereafter, the RTC
indicated that in order to fund RTC operations, it might be forced to demand
early repayment of the $11.3 billion lent to 169 thrifts. The demand could force the thrifts to depend
once again on high-cost funds, driving up deposit interest rates across the
United States.78 Such an eventuality
belied the Treasury claim that the RTC had enough cash to last into the second
quarter, and indeed, not long afterward, John Robson informed Congress that the
RTC would need an infusion of working capital funds during the first quarter of
political jostling, it was most unlikely that the administration could persuade
congressional Democrats to approve anything other than FFB borrowing. It was clear that working capital was
necessary and would be provided; the politics surrounding the budgetary
treatment of working capital were just as clear; and the administration
undoubtedly preferred a method that would not increase the deficit.80 In mid-February, the Justice Department ruled
that the RTC had the authority to raise funds through the FFB, at last clearing
the way for the RTC to be provided with working capital.81 The announcement was immediately made that
the RTC would raise $11 billion in the first quarter, with $8 billion going for
carrying costs of receivership assets and $3 billion for the replacement of
high-cost funds backing conservatorships.82
The RTC had been
provided with working capital, but what the additional borrowing would mean for
the budget was less clear. Since the
fiscal-year 1990 budget was already in place, any 1990 borrowings might
increase the deficit but would not require any action under Gramm-Rudman.
In 1991, however, any substantial increase in
the deficit resulting from RTC borrowing might make necessary significant
offsetting budget cuts (something neither party would find palatable), barring
a tax increase that Bush had already forsworn.
The solution was to exclude RTC working capital from the GRH budget
targets, a goal accomplished by a provision approved by the Senate
Appropriations Committee in April.
Reportedly, the administration, the Congressional Budget Office (CBO),
and the Senate leadership supported the legislative change.83 In the end, the Budget Enforcement Act of
1990 effected the exclusion, whose relevant provision also had the salutary
effect of excluding any further legislative appropriations for RTC losses from
the budget deficit reduction process.84
The $18.8 Billion Loophole
capital saga was not quite over, however.
Although the mechanism through which the RTC would borrow was agreed to,
the possibility still existed that the agency would be unable to borrow enough
working capital to fund its operations.
In June 1990, Treasury Secretary Bradyeven as he asked for
appropriations for loss funds beyond the $50 billion already providedinformed
Congress that before the RTC spent the $50 billion for losses, it was likely to
run up against the obligation limit set by FIRREA at the insistence of Rep.
Gonzalez. The obligation limit (also
known as the note cap) was intended to restrict total RTC obligations to the
sum of its cash, unused loss funds, and 85 percent of the fair market value of
assets it acquired.85 This meant
essentially that the RTC had to hold unused loss funds in reserve in an amount
equal to 15 percent of the fair market value of its assets.86 These funds would serve as a capital cushion
for repayment of debt obligations in the event that RTCs estimates of fair
market values proved to be too optimistic. The Oversight Board characterized
the situation as requiring immediate attention, and the RTC held out the
possibility of needing to dramatically step up asset sales to fund
resolutions. Others argued that the
administration was simply applying pressure to have RTC borrowing excluded from
the budget (which, as noted, did occur), and a Senate Banking Committee staffer
said that although the RTC would run into the obligations limit before the end
of the year, the danger was not imminent.87
This prediction was fairly accurate, but the fear that the RTC would
have to radically slow the pace of its resolutions stirred action.
The solution to
the difficulty lay in an oversight: FIRREAs note cap formula implicitly
calculated unused loss funds as the excess of the $50 billion authorized by
FIRREA over RefCorp funds received to date.
However, RefCorp funding could only account for up to $31.2 of the $50
billion; the note cap (erroneously) omitted a reference to the $18.8 billion in
Treasury funding that had also been provided in FIRREA. The RTC, to reassure Congress that it would
not take advantage of the error, had been including the Treasury funding in its
borrowing limit calculations regardless (i.e., as if it were no different than
RefCorp funds). Until mid-1990, this
compensatory calculation was of little consequence, but Treasury projected that
if the RTC continued the calculation in this manner, the obligations limitation
would become a real constraint by the fourth quarter.88 Undersecretary Robert Glauber told the House
Banking Committee that a literal reading of FIRREA would deduct only RefCorp
contributions received from the $50 billion in FIRREA-authorized funds to
determine the amount of unused loss funds available to back new obligations. This would permit the remaining $18.8 billion
to offset the note caps required reserve of loss funds (15 percent of the fair
market value of assets) originally intended to ensure that RTC could repay its
working capital borrowing. In effect,
the RTC would be able to borrow for working capital up to 100 percent of the
fair market value of assets acquired.89
He added that in the absence of action by Congress, we would be faced
with the choice between using the $18.8 billion to raise working capital and shutting
down the resolution activity of the RTC, but he said that the RTC would not
take the former course without congressional approval.90 House members at the hearing, confronted by
the simultaneous request for significant additional loss funds, paid scant
attention to the working capital issue, but a decision to acquiesce in the
literal interpretation would allow Congress to delay a highly contentious vote
on new loss funding until after the November elections.91
took some time to get there. In late
August Nicholas Brady noted in a letter to Rep. Dan Rostenkowski that although
the administration had no specific proposal for adjusting the note cap, any
funding legislation had to deal with the obligations limitation. A month later, Seidman again warned that
without action, RTC resolutions would have to be tied to asset sales and would
slow to only a handful of institutions per quarter. Although the RTC had not yet run up against
the limit, Seidman reiterated that it would soon become a constraint. He suggested that rather than omit the $18.8
billion in Treasury funding from the calculation, FIRREA be amended to allow
the RTC to borrow 100 percent of the fair market value of its assets, noting that
since the ultimate costs will be the Governments in any event, it does not
seem that the Government is taking any real risk [if such a change is made].92
however, Congress was concentrating much more on the increase in loss funds
than on operating capital. The
assumption was that somewhere in the new funding legislation Congress would
address the working capital issue; however, as discussed below, Congress
adjourned without agreeing to any new RTC funding. Just before the adjournment, the House
Banking Committee on a voice vote approved allowing the RTC to use the $18.8
billion drafting error and the Senate followed suit.93
On October 30, the
RTC wrote to the Oversight Board asking that it be allowed to take advantage of
the $18.8 billion drafting error and stating that otherwise, operations would
come to a halt before the end of the year.94
Two days later the Oversight Board agreed, providing the RTC with
sufficient working capital and access to loss funds to continue resolving
institutions until Congress could return to the issue in the new
session.95 Gonzalez and Riegle had both
written to the Oversight Board encouraging this action.96 This interpretation of FIRREA could
conceivably have been challenged in the courts, but Gonzalez noted that with
Congress having failed to pass any new funding for the RTC, he believed no one
in Congress would object to the decision.97
Once the decision was made, David Cooke told the RTC Board that the
agency could move quickly to market the larger institutions it had planned to
resolve during the fourth quarter, and that it could now continue through
Table 1 shows what
the limitations on outstanding obligations would have been under the note cap
formula (see note 85) from March 31, 1990, to March 31, 1991. As the table shows, without approval to take
advantage of the loophole, the RTC would have exceeded the obligations
limitation before year-end. With the
changed calculation, however, the agency easily complied with the limitation.99 In hindsight, the RTCs position would have
been easier if FIRREA had dealt more directly with working capitalif doing so
had even been possible. Congressional
attitudes in 1990 illustrate the difficulties that would have attended adding
anything to FIRREA that might have been portrayed as additional funding. Moreover, since the number of institutions
and the volume of assets the RTC was dealing with were moving targets, any
working capital provisions in FIRREA would likely have proved inadequate. And the Bush administration might have believed
that it could borrow working capital quietly off-budget after the fact,
although given the scrutiny attached to the RTC, any such attempt would likely
The struggle over
working capital demonstrates how politicized RTC spending was and how enmeshed
the agency was in budget brinksmanship at a time when the federal budget was in
serious deficit. Irrespective of this,
however, the number of insolvent institutions and the associated costs of
resolving them kept rising. Had FIRREA
not inadvertently included the $18.8 billion loophole, the RTCs operations
might have been seriously impaired by the end of 1990, and Congress would
undoubtedlyalthough perhaps grudginglyhave been forced into a swift
about-face. However, as discussed below,
the politics of RTC funding often led to impasse.
Table 1. Limitation on Outstanding Obligations 3/31/19903/31/1991 ($Millions)
A Contributions Received
B Outstanding Obligations
C Cash & Equivalents
D 85% FMV Assets
(A+B-C-D) Adjusted Obligation Level
Note: For an explanation of the formula used to calculate the obligations limit see note 85.
Sources: U.S. GAO, Obligations Limitation . . . as of March 31, 1990; June 30, 1990; September 30, 1990; December 31, 1990; March 31, 1991(1990, 1991, 1992)
* Calculation includes $18.8 billion in Treasury contributions.
1990 Legislative Stalemate
As noted, FIRREAs
$50 billion in loss funds was almost immediately recognized as
insufficient. In January 1990, Seidman
told Congress that although the $50 billion would cover insolvencies into 1991,
it was obvious that more would be needed, perhaps another $24 billion. The reaction of Democratic Rep. Frank
Annunzio was not encouraging: there was, he said, No way you are getting money
from the Congress.100 Republican Rep. James
Leach noted, Congress would rather not deal with the thrift issue ever again .
. . but it probably has no choice.101
Both of Leachs points would turn out to be true. The RTC did not get its money from Congress
in that session, and Congress did have to deal with the issue again in the
In March, the
House Banking Committee RTC task force predicted that the RTC would require $30
billion more in loss funds.102 In April,
the GAO followed with another increased estimate of the cost.103 In May, the Bush administration presented
Congress with a revised estimate of the costs, stating that the current
worst-case scenario might entail another $57 billion. Commentators at the time
felt that Treasury was at last presenting realistic estimates of the cost,
perhaps to ensure that no higher estimates would have to be announced as the
1992 presidential campaign got under way.
Treasury Secretary Brady told Congress that the administration would
accept either an open-ended appropriation or some set figure, and would leave
it up to Congress to decide.104
Democrats criticized the administration for its conduct and were
particularly unreceptive to the notion of open-ended appropriations.105 Even some Republicans were unhappy with such
a course.106 Although it does not
appear that the administration was seriously considering another off-budget
vehicle, one Democrat fired a warning shot with a bill providing that any
future funding had to use direct Treasury appropriation.107 As summer ended, Seidman informed the House
Ways and Means Committee that the RTC would need $30$40 billion in new loss
fund appropriations for the next fiscal year, noting, Unfortunately, when it
comes to loss funds, there really are no alternatives . . . [they] will have to
come from the American taxpayer.108
Seidmans request was endorsed by both the GAO and CBO, both of which
argued that the slowdown caused by lack of funds could significantly increase
the cost of the S&L cleanup.109
With the session
drawing to a close, Congress finally turned to the problem of the loss
funds. On October 10, Brady wrote to
both of the Banking Committees, noting that RTC case resolution will virtually
cease within the next two months unless additional funds are provided. He requested legislation providing $40
billion and removing the
FIRREA note cap provisions; alternatively, if Congress chose to maintain the
note cap, he requested $57 billion. The
Senate Banking Committee moved quickly to mark up a bill (S.3222) providing the
$57 billion. There was some Democratic
dissent, but the Senate was clearly willing to appropriate the amount requested
by the administration.110
however, was not. House Banking
Committee chairman Gonzalez was angered by Nicholas Bradys refusal to appear
before his committee; the refusal prompted him to cancel a planned hearing on
October 17. He responded by stopping
work on a markup of the RTC funding bill.
With congressional elections imminent, politics likely played a role
here: Gonzalez and House Democrats wanted another opportunity to associate the
funding request with the administration, and Brady undoubtedly did not relish
the thought of appearing before the committee and serving as a target for
attacks on the handling of the cleanup.
Gonzalez claimed that the administration wanted to slip this through
without any real oversight, saying he had never seen a request for
authorization of funds without the accompanying willingness of an agency or
department head to defend [it] . . . in open session. The Treasury Departments view was that the
committee had all the information it needed to make its decision and that it
was the committees responsibility to act.111
eventually relentedsomewhat. The House
Banking Committee moved on a bill that would provide only interim funding of
$10 billion (although it also addressed the $18.8 billion loophole discussed
above).112 The bill also required that
any additional request for funds be submitted to both Banking Committees and
contain a complete six-month financial plan detailing how the monies would be
spent.113 The measure was approved by
the committee on October 23, but not without opposition: Democratic Rep. Doug
Barnard said that if you want to keep them on a real short leash, you
shouldnt give them anything. Even some
Republicans positioned themselves against RTC funding, with Rep. Toby Roth
arguing against passing even the $10 billion interim funding.114
realized that, with little time left in the session, there was not much
likelihood of reconciling two very disparate bills. Accordingly, it amended its bill by replacing
it with a measure essentially identical to that passed by the House committee
(providing only $10 billion in interim funding). Riegle noted that this would keep the RTC on
a very tight leash and ensure that RTC funding would be one of the first
measures to confront the new Congress.
He expressed some dismay that they were not providing more
money.115 The bill passed the Senate on
a voice vote. However, the House failed
to pass the legislation. Reports
suggested that the bill had been toppled by a procedural objection from Annunzio,
but at the time some thought that there might not have been enough votes for
passage anyway.116 The Houses inaction
ensured that Congress would not block the use of the $18.8 billion loophole,
for use of the loophole allowed Congress to postpone dealing with the
loss-funding issue without forcing the RTC to cease resolving thrifts and would
give legislators the ability to address funding early in the new Congress.117
Note: The bibliography below provides the sources
used for Parts I and II of this article. Although some of these materials are
not referred to in Part I, the complete bibliography is provided for the
RTC. Board Meeting Transcripts. 19891991.
RTC. Legislative History Files. (LEGH 68). 19901992.
RTC. Transition Briefing Books. 19911993.
RTC. CEO Management Information. 19931994.
Congressional Record 19891993.
Bills and Resolutions
U.S. House. H.R.
3469. Federal Agency Debt Management
Act. 101st Cong., 1st sess., October 13,
4127. Resolution Trust Corporation
Reform Act of 1990. 101st Cong., 2nd
sess., February 27, 1990.
5603. Resolution Trust Corporation Loss
Reduction and Funding Act of 1992. 102d
Cong., 2d sess., July 9, 1992.
5629. Resolution Trust Corporation Asset
Recovery Act of 1992. 102d Cong., 2d sess., July 21, 1992.
U.S. Senate. S.
2155. Resolution Trust Corporation
Reorganization Act. 101st Cong., 2d
sess., February 21, 1990.
3112. Savings and Loan Simplification
Act of 1990. 101st Cong., 2d sess.,
September 26, 1990.
3222. Resolution Trust Corporation
Funding Act. 101st Cong., 2d sess.,
October 28, 1990.
. S. 389. Resolution Trust Corporation Reorganization
Act. 102d Cong., 1st sess., February 7,
1943. Resolution Trust Corporation
Reform Act of 1991. 102d Cong., 1st
sess., November 7, 1991.
. S. 419. Resolution Trust Corporation Funding Act of
1991. 102d Cong., 1st sess., February
. S. 572. Savings and Loan Simplification Act of
1991. 102d Cong., 1st sess., March 6,
Hearings and Reports
Providing for the Consideration of H.R. 1315. Report (to accompany H. Res. 105), 102d
Cong., 1st sess., H. Rpt. 102-13, March 7, 1991.
Trust Corporation Funding Act of 1991, Conference Report. 102d Cong., 1st sess., H. Rpt. 102-7, March
Trust Corporation Completion Act.
Report. 103d Cong., 1st sess., H. Rpt. 103-103, Part 2, June 15, 1993.
U.S. House Committee on Banking, Finance and Urban
Affairs. Oversight Hearings on the
Resolution Trust Corporation. 101st
Cong., 2d sess., Ser. No. 101-69, January 2325, 1990.
Report and Appearance by the Oversight Board of the Resolution Trust
Corporation. 101st Cong., 2d sess., Ser.
No. 101-33, June 14, 1990.
. Funding the
Resolution Trust Corporation: Hearing.
101st Cong., 2d sess., Ser. No. 101-160, July 30, 1990.
Trust Corporation Funding Act of 1990: Report.
101st Cong., 2d sess., H. Rpt. 101-974, October 27, 1990.
Appearance of the Resolution Trust Corporation Oversight Board: Hearing. 102d Cong., 1st sess., Ser. No. 102-2,
January 31, 1991.
Accounting Office Report Card on RTC Operations: Hearing. 102d Cong, 1st sess., Ser. No. 102-5,
February 20, 1991.
Semiannual Report for Period Ending April 30, 1991: Hearing. 102d Cong., 1st sess., Ser. No. 102-54, July
Appearance of the Thrift Depositor Protection Board: Hearing. 102d Cong., 2d sess., Ser. 102-140, July 29,
Appearance of the Thrift Depositor Protection Oversight Board: Hearing. 103d Cong., 1st sess., Ser. No. 103-18, March
U.S. House Committee on Banking, Finance and Urban
Affairs, Subcommittee on Financial Institutions Supervision, Regulation and
Insurance. Resolution Trust Corporation
Refinancing and Restructuring Issues: Hearing.
102d Cong., 1st sess., Ser. No. 102-70, September 12 and 17, 1991.
Trust Corporation Funding Act of 1992: H.R. 4241: Hearing. 102d Cong., 2d
sess., Ser. No.102-102, February 26, 1992.
U.S. House Committee on Banking, Finance and Urban
Affairs, Subcommittee on Financial Institutions Supervision, Regulation and
Deposit Insurance. Funding Needs of the
Resolution Trust Corporation and Savings Association Insurance Fund:
Hearing. 103d Cong., 1st sess., Ser. No.
103-19, March 17 and 18, 1993.
U.S. House Committee on Banking, Finance and Urban
Affairs, Subcommittee on Financial Institutions Supervision, Regulation and
Insurance, Resolution Trust Corporation Task Force. Status and Activities of the RTC and the
Oversight Board: Hearings. 101st Cong.,
1st sess., Ser. No. 101-55, October 4 and 19; November 6 and 13, 1989.
. Disposition of Assets by the Resolution Trust
Corporation: Hearing. 101st Cong., 2d
sess., Ser. No. 101-102. (March 27, 1990).
of Assets by the RTC: Hearing. 101st
Cong., 2d sess., Ser. No. 101-122. May 4, 1990.
. Alternative Financing Options for the Savings and
Loan Cleanup Costs: Hearing. 101st Cong., 2d sess., Ser. No. 101-174.
(September 26, 1990).
Consideration of the Implications of the RTC Control Problems for
Proposals to Restructure the Bail-out Machinery. 102d Cong., 1st sess., Ser.
No. 102-51, June 17, 1991.
U.S. House Committee on Banking, Finance and Urban
Affairs, Subcommittee on General Oversight and Investigations. Resolution Trust Corporations Asset
Disposition Policies: Hearing. 102d Cong., 1st sess., Ser. No. 102-68.
(September 6, 1991).
. The RTCs
Operation Western Storm: Hearing. 102d
Cong., 2d sess., Ser. No. 102-144, August 6, 1992.
U.S. House Committee on Banking, Finance and Urban
Affairs, Subcommittee on General Oversight, Investigations, and the Resolution
of Failed Financial Institutions.
Professional Liability and RTC Contracting with Lawyers: Hearing. 103d Cong., 1st sess., Ser. No. 103-22, March
U.S. House Committee on Ways and Means. Additional Financing Costs Associated with
Resolving Insolvent Savings and Loans Institutions: Hearing. 101st Cong., 2d sess., Ser. No. 101-125,
September 19, 1990.
U.S. House Committee on Ways and Means, Subcommittee on
Oversight. Role of Federal Borrowing and
Loan Guarantees in Resolving Insolvent Thrift Institutions: Hearing on H.R.
3469 to Amend Title 31, United States Code, to Prevent Newly Established
Federal Agencies from Increasing Debt through Unauthorized Borrowing. 101st Cong., 1st sess., Ser. No. 101-68,
October 31, 1989.
U.S. Senate Committee on Banking, Housing, and Urban
Affairs. Oversight Hearing on the
Resolution Trust Corporation. 101st
Cong., 1st sess., S. Hrg. 101-504, October 4, 1989.
Oversight Hearing on the Resolution Trust Corporation. 101st Cong, 2d sess., S. Hrg. 101-738,
January 31, 1990.
. Hearing on
the Semiannual Report of the Resolution Trust Corporation. 101st Cong., 2d sess., S. Hrg. 101-974, May
Trust Corporation Funding Act of 1990: Report.
101st Cong., 2d sess., S. Rpt. 102-13, October 19, 1990.
. Hearing on
the Semiannual Report of the Resolution Trust Corporation, 1991. 102d Cong., 1st sess., S. Hrg. 102-54,
January 23, 1991.
Restructuring the Resolution Trust Corporation and the Semiannual Report
on FIRREA Legislation: Hearing. 102d
Cong., 1st sess., S. Hrg. 102-465, June 11, 21, and 26, 1991.
the RTC: Hearing. 102d Cong., 1st sess.,
S. Hrg. 102-535, October 24, 1991.
of Albert V. Casey: Hearing. S. Hrg
102-668, 102d Cong., 2d sess., January 22, 1992.
. Hearing on
the Semiannual Report of the Resolution Trust Corporation1993. 103d Cong., 1st sess., S. Hrg. 103-58, March
Depositor Protection Act of 1993: Report.
103d Cong., 1st sess., S. Rpt. 103-36, April 1, 1993.
U.S. Senate Committee on Banking, Housing, and Urban
Affairs, Subcommittee on Consumer and Regulatory Affairs. Real Estate Disposition Activities of the
Resolution Trust Corporation: Hearing.
102d Cong., 1st sess., S. Hrg. 102-141, June 19, 1991.
Structure of the RTC: Hearing. 102d
Cong., 1st sess., S. Hrg. 102-513, October 23, 1991.
U.S. Senate Committee on Governmental Affairs,
Subcommittee on Regulation and Government Information. Contracting Problems at
the Resolution Trust Corporation: HomeFed, Hearing. 103d Cong., 1st sess., S.
Hrg. 103-804. February 19, 1993.
Banker. 19891993. http://www.lexisnexis.com.
News. 19891993. http://www.lexisnexis.com.
Times. 19891993. http://www.lexisnexis.com.
Journal. 19891993. http://www.factiva.com.
Post. 19891993. http://www.lexisnexis.com.
Abstract: August 1989/September 1995.
William. Full Faith and Credit: The Great S&L Debacle and Other Washington
Sagas. Times Books. 1993.
Protection Oversight Board and Resolution Trust Corporation. Annual Report of the Thrift Depositor
Protection Oversight Board and the Resolution Trust Corporation for the
Calendar Year 1995. 1996.
U.S. General Accounting Office. Obligations Limitation: Resolution Trust
Corporations Compliance as of March 31, 1990.
Limitation: Resolution Trust Corporations Compliance as of June 30, 1990. GAO/AFMD-91-41. 1990.
Limitation: Resolution Trust Corporations Compliance as of September 30,
1990. GAO/AFMD-91-63. 1991.
Limitation: Resolution Trust Corporations Compliance as of December 31,
1990. GAO/AFMD-92-4. 1991.
Limitation: Resolution Trust Corporations Compliance as of March 31,
1991. GAO/AFMD-92-39. 1992.
* The author is a historian in the FDICs
Division of Insurance and Research. The author would like to thank Tim
Critchfield, Timothy Curry, Alice Goodman, Matthew Green, Jack Reidhill and
Lynn Shibut for their helpful comments and suggestions. Any errors are, of
course, the responsibility of the author.
1 As enacted, FIRREA made the RTC a
limited-life (the corporation was to terminate by year-end 1996) entity that
would manage and resolve all formerly FSLIC-insured institutions placed under
conservatorship or receivership from January 1, 1989, through August 9,
1992. As of the date of enactment, the RTC was to succeed the Federal
Savings and Loan Insurance Corporation (FSLIC) in its role as conservator or
receiver of any institution. General oversight of the RTC was vested in
an Oversight Board, which was to direct the RTCs overall policy, but
operational control would rest with the RTC itself. The Board of
Directors of the FDIC was to serve as the RTCs Board of Directors. (FIRREA
expanded the FDICs Board from three to five members, adding the head of the
Office of Thrift Supervision (OTS) and a member to be nominated by the
president). The FDIC would be the RTCs exclusive manager. For a detailed
discussion of the creation of the RTC, see Lee Davison, Politics and Policy, FDIC
Banking Review 17, no. 2 (2005).
2 In 1991, Congress passed the Resolution
Trust Corporation Funding Act of 1991 (Public Law 102-18) and the Resolution
Trust Corporation Refinancing, Restructuring and Improvement Act of 1991
(Public Law 102-233). In 1993, it passed the Resolution Trust Corporation
Completion Act of 1993 (Public Law 103-304).
3 Steve Klinkerman, The High Road Is Costing
the RTC Time and Money, American Banker (August 16, 1990).
4 It is, of course, impossible to divorce the
issues of working capital and loss funding from the question of management: in
mid- to late 1990, the expectation and then the reality of imminent shortfalls
placed considerable constraints on the agencys ability to carry out its work.
In short, there was no way the RTC could make continued significant progress
without the necessary underpinning of adequate working capital and loss funds.
Nevertheless, the lack of funds and the RTCs response to it contributed to
criticism, even if the funding problem was beyond the agencys control. And
criticism of the RTC in general could mean a multitude of things. The
criticism might be directed at the agency itself, by the public or Congress, or
the criticism might be aimed not specifically at the RTC but at the
administrations conduct (whether exemplified by the Oversight Board or by the
Treasury) or at the bailout, with varying degrees of specificity or breadth.
Although some detractors aimed their criticism precisely, many others did not.
5 John Murphy, former FDIC general counsel
noted, Lets face it, the legislation has been percolating for six months . .
. [and] now that it has bubbled to the surface, people will be expecting prompt
action (Steve Klinkerman, All Eyes Are on Seidman to Move Fast and Smart on
Thrift Cleanup, American Banker [August 10, 1989]).
8 Robert Trigaux, RTC Must Rely on Sales
Mentality for Its Role in Bailout to Succeed, American Banker (May 9, 1990).
Many observers were more impatient than Isaac, but pessimists were far less
sanguine than he about the RTCs prospects: in October 1989, John Oros, a
partner at investment banking company Goldman Sachs, declared it likely that
our grandchildren will be buying assets from the RTC (5-Year RTC Cleanup
Called the Big Lie, National Mortgage News [October 2, 1989]).
10 It should be noted that the RTCs
management was inclined to do more complicated deals, but the Oversight Boards
cautious attitude inhibited such activity.
11 Robert M. Garsson, Vento Urges Abolition
of RTC Oversight Board, Tough Scrutiny Ahead for RTC, and Banking Panel
Faults Bush on Pace of S&L Resolutions, American Banker (January 8, 22,
and 24, 1990). For the debate over working capital, see the relevant section
of this article.
13 Steve Klinkerman, Southwest Fears Impact
of Real Estate Liquidation, American Banker (August 16, 1989).
14 RTC Board of Directors Meeting, October
15 Seidman noted in January 1990 that on one
side are the anti-dumpers, on the other side are the fast sellers (Robert D.
Hershey, Jr., Savings Rescue Cost Seen Rising, New York Times [January 25,
16 Steve Klinkerman, RTCs Aggressive Policy
Garners Favorable Reviews, American Banker (April 3, 1990).
17 RTC Too Slow in Disposing of Real Estate
Assets, National Mortgage News (April 16, 1990).
18 See U.S. House Committee on Banking,
Housing, and Urban Affairs, Subcommittee on Financial Institutions Supervision,
Regulation and Insurance, Resolution Trust Corporation Task Force, Disposition
of Assets (May 4, 1990), 30. Fears of asset dumping and potential damage to
local real estate markets had prompted legislators to add a provision in FIRREA
requiring that the RTC not sell property in those areas for less than 95
percent of the market value established by the RTC.
19 Stephen Labaton, Savings Debate Gets
Partisan Tone, New York Times (June 15, 1990).
20 By then the RTC had its own market
experience to go on and could lower an assets market value by taking this
experience into account: if it had not been able to sell a property after six
months (four months for residential properties), the market value could be
lowered by up to 15 percent; if the property continued unsold for another three
months, the market value could be lowered by another 5 percent. If the property
still remained unsold, it would be reappraised, but the market value would not
be raised if the reappraisal was higher than the most recent market value set
by the RTC (Paulette Thomas, Resolution Trust Corporation to Slash Prices of
Hard-to-Sell Realty from Sick S&Ls, Wall Street Journal [May 9, 1990]).
21 Paul Duke, Jr., Bailout Officials Set
Plan to Sell S&L Real EstateStockpile Would Be Sold in $500 Million Chunks
over the Next Few Years, Wall Street Journal (June 11, 1990).
22 For example, individual transactions were
not part of the Oversight Boards purview.
23 As structured by FIRREA, the Oversight
Board had five members. Three of these were government officials: the
Secretary of the Treasury (Nicholas Brady, who served as the boards chairman),
the Chairman of the Federal Reserve Board (Alan Greenspan), and the Secretary
of Housing and Urban Development (Jack Kemp). The other members were
individuals to be nominated by the president and confirmed by the Senate. The
first such members were Philip Jackson (a former Fed governor) and Robert
Larson (the CEO of a real estate development firm). The Senate confirmed
Jackson and Larson in April 1990.
24 For example, in December 1989 there was
some suggestion that the Oversight Board might be interested in setting RTC
employment ceilings. When RTC Executive Director David Cooke, remarking that
this seemed to be outside of the Oversight Boards territory, asked the RTC
Board if it wanted to provide guidance to the Oversight Board, the RTC Boards
members declined, with Seidman noting, If this is oversight, they might as
well handle everything (RTC Board of Directors Meeting, December 12, 1989).
25 RTC Board of Directors Meeting, January 9,
26 RTC Board of Directors Meeting, October
27 Barbara A. Rehm, 21-Year Veteran of FDIC
Climbs to Top RTC Post, American Banker (August 10, 1989).
28 Jim McTague, RTC Told to Delay Major
Deals; Key Policy Issues Must Be Resolved First, American Banker (August 14,
29 Barbara Rehm, Helmsman Cooke Plots RTC
Course, American Banker (August 14, 1989). Seidman later recalled that even
small transactions created problems. The RTC had decided that as a means to
show the world that it would hit the ground running, the agency would liquidate
three small S&Ls and pay off their depositors. In the absence of defined
policies, the Oversight Board initially chose not to make funds available.
Seidman informed Deputy Treasury Secretary John Robson that if asked to explain
why the thrifts had not been liquidated (he was scheduled to appear on the
news), he would state that lack of funds was responsible. The Oversight Board
reversed its decision and made the funds available (L. William Seidman, Full
Faith and Credit: The Great S&L Debacle and Other Washington Sagas ,
30 RTC Board of Directors Meeting, August 15,
31 Nathaniel C. Nash, Federal Savings
Industry Rescue Is Entangled in Agency Disputes, New York Times (August 28,
32 Paulette Thomas, Thrift Bailout, Lacking
a Chief and Floundering as Officials Feud, Slows and Grows More Costly, Wall
Street Journal (October 11, 1989).
33 Jim McTague, RTC Sales Unfair to Small
Banks, American Banker (October 20, 1989).
34 Barbara A. Rehm, Lawmakers Say Guidelines
from RTC Oversight Board Are Vague, American Banker (November 7, 1989).
35 Gregory Wright, RTC May Run Dry by 1991,
National Mortgage News (November 13, 1989).
36 John L. Douglas, the FDICs outgoing
general counsel, stated in December that if the working capital debate was not
resolved, it would put the RTC out of business, noting that the bickering with
Treasury had to stop: The RTC is a beggar at Treasurys door constantly
(Barbara A. Rehm, No Money, Too Many Rules, and No Friends, American Banker
[December 11, 1989]).
37 Kearney was a principal at a Boston real
estate advisory firm and had previously held posts at the Department of Housing
and Urban Development, the Government National Mortgage Association, and the
Office of Management and Budget (OMB) as well as Salomon Brothers (Barbara A.
Rehm, Top RTC Overseer Plays Conciliator for Rival Factions, American Banker
[November 7, 1989]).
38 Barbara A. Rehm, Confidence in RTC Seen
Waning; Kearney Exit Spells Deeper Trouble for S&L Agency, American Banker
(February 12, 1990); Brian Collins, News Analysis: RTC Resignation Shows
Tensions, National Mortgage News (February 19, 1990); and The Thrift Bomb,
Wall Street Journal (February 13, 1990). Kearneys difficulties can be
illustrated by a discussion at an RTC board meeting, where it was noted that
Kearney had made clear to the Oversight Board that the RTC needed more
flexibility to make deals. The RTC board believed that Kearney was supportive
and understood the issues but that, despite significant effort, he had been
unable to make real progress. During the discussion, it was mentioned that the
Oversight Boards lack of action was not the real problem because funding was
controlled by Treasury and the OMB (RTC Board of Directors Meeting, January 12,
40 Steve Klinkerman, RTC Hogtied by Its
Overseers, American Banker (December 26, 1989).
41 For these three observations, see Glenn
Brenner, Pace Slows in Bailout of Thrifts; Shortage of Funds Threatens Effort
to Sell Failed S&Ls, Washington Post (January 8, 1990); see also Robert M.
Garsson, Vento Urges Abolition of RTC Oversight Board, American Banker
(January 8, 1990).
42 RTC Board of Directors Meeting, January 9,
43 U.S. House Committee on Banking, Finance and
Urban Affairs, Oversight Hearings (January 2325, 1990), 98100.
44 U.S. Senate Committee on Banking, Housing,
and Urban Affairs, Second Oversight Hearing (January 31, 1990), 19.
45 Nathaniel C. Nash, Resignation at Savings
Agency, New York Times (February 10, 1990).
46 Barbara A. Rehm, Confidence in RTC Seen
Waning; Kearney Exit Spells Deeper Trouble for S&L Agency, American Banker
(February 12, 1990).
47 The Thrift Bomb, Wall Street Journal
(February 13, 1990).
48 Brian Collins, RTC Resignation Shows
Tensions, National Mortgage News (February 19, 1990).
49 U.S. Senate Committee on Banking, Housing,
and Urban Affairs, Oversight Hearing (October 4, 1989), 6667.
50 S. 2155 and H.R. 4386, the Resolution
Trust Corporation Reorganization Act.
52 During 1990, two other bills also sought
to change the RTCs management structure. One, H.R. 4851, the Financial
Institutions Oversight Reform Act introduced by Rep. William Gradison in May,
was a sweeping bill establishing Treasury control over financial institutions.
It would have abolished not only the RTC but also several other entities,
including the Office of Thrift Supervision (OTS). Given the extreme nature of
this bill, it is unsurprising that it received little attention. Another bill,
S. 3112, introduced by Senator Tim Wirth in September, would have abolished the
Oversight Board and created a new Board of Directors for the RTC, consisting of
the FDICs board and two independent members to be nominated by the president.
These bills show that in some quarters the notion of changing the management
structure persisted throughout 1990.
53 Robert M. Garsson, Riegle Opposes Efforts
to Amend S&L Bailout, American Banker (February 6, 1990).
54 Brian Collins, RTC Resignation Shows
Tensions, National Mortgage News (February 19, 1990).
55 Robert M. Garsson, Seidman Opens 2nd
Office at RTC Headquarters, American Banker (March 26, 1990).
56 Seidman predicted that Taylor would be
able to be more flexible than his predecessor (RTC Board of Directors Meeting,
February 13, 1990). Taylor served as acting president until June, when Peter
Monroe, a former deputy assistant secretary at HUD, took the position (Linda
Corman, RTCs New Oversight Chief Has Learned to Get Along, American Banker
[June 4, 1990]).
57 See for example, letter from L. William
Seidman to Sen. Donald W. Riegle, Jr., June 26, 1989, reprinted in U.S. House
Committee on Banking, Finance and Urban Affairs, Oversight Hearings (Jan.
2325, 1990), 560ff. Seidman then noted that RTC likely will need
considerably more than $50 billion to provide working capital to effect
resolutions. . . . RTC must have the ability to raise cash or provide
58 Brian Collins, RTC Chafes under Tight
Grip, National Mortgage News (August 28, 1989).
59 U.S. Senate Committee on Banking, Housing,
and Urban Affairs, Oversight Hearing (October 4, 1989), 11819.
60 U.S. House Committee on Banking, Finance
and Urban Affairs, Subcommittee on Financial Institutions Supervision,
Regulation and Insurance, Resolution Trust Corporation Task Force, Status and
Activities (October 4 and 19, November 6 and 13, 1989), passim.
61 GRH created maximum deficit amounts.
The law mandated that if these were exceeded, the president would be required
to issue a sequester order to reduce all nonexempt spending by the same
62 At least this was the case according to
OTS Director M. Danny Wall (RTC Board of Directors Meeting, January 9, 1990).
63 H.R. 3469 was introduced on October 13,
1989, by Rep. Fortney Stark; several important House members, including Dan
Rostenkowski, were co-sponsors.
64 U.S. House Committee on Ways and Means,
Subcommittee on Oversight, Role of Federal Borrowing and Loan Guarantees (October
31, 1989), 36ff. For the FIRREA obligations limit, see Davison (2005), 29, and
the discussion in the present article.
65 Because the GRH law applied only to
prospective fiscal years, working capital outlays financed by borrowing in the
current fiscal year would not trigger the need for spending cuts.
66 Thrifts in conservatorship were still
operating institutions (run by the RTC) and needed to fund their assets. The
greater the amount of funding provided to the institution through loans from
the RTC, the less funding the thrift would have to seek in the deposit markets
at higher cost. High-cost funds replacement therefore lowered the cost to the
taxpayer. For a description of the conservatorship process, see FDIC, Managing
the Crisis, 11718.
67 He was also concerned that the bill might
be interpreted as applying to RefCorp, an interpretation that would put it in
conflict with FIRREA, and that it might prohibit the RTC from providing the
assurances and indemnities against lawsuits that are routinely provided to
acquirers of institutions or assets. It might also be interpreted as banning
putbacks of assets, thereby increasing the need for working capital, and might
make it very costly for the RTC to securitize assets. All in all, Seidman felt
the bill could put the RTC out of business (U.S. House Committee on Ways and
Means, Subcommittee on Oversight, Role of Federal Borrowing and Loan Guarantees
[October 31, 1989], 51ff.).
69 Robert M. Garsson, RTC Funding Fight Put
on Hold until Next Year, American Banker (November 15, 1989).
70 RTC Board of Directors Meeting, November
71 Several weeks earlier, when the agency had
been unable to get a clear answer on how it could draw in a timely fashion on
the $5 billion line of credit established by FIRREA, it had been forced to hold
$1 billion in reserve that might have gone toward replacing high-cost funds
(RTC Board of Directors Meeting, November 29, 1989).
73 Jerry Knight, S&L Board Unveils Its
Rescue Plan; Needed Funding Remains Uncertain, Washington Post (January 4,
1990). In fact, in late November, in discussions with RTC management, Kearney
said the Oversight Board was ready to submit its working capital plans to the
administration for discussion and was leaning toward direct borrowing from the
Federal Financing Bank (FFB). (The FFB was created by Congress in 1973 to
centralize borrowing by federal agencies and reduce the cost of such
borrowing.) The RTC was also told that the OMB had somehow decided that
[using the FFB] may be off budget. Cooke told Kearney that the budget status
was immaterial to the RTC; Kearney replied that it was immaterial to him as
well (RTC Board of Directors Meeting, November 29, 1989). As indicated above,
however, the budget-scoring issue was very important to both the administration
74 Paulette Thomas, S&L Bailout Aides
Scrap Plan to Create Off-Budget Agency to Raise Financing, Wall Street Journal
(January 9, 1990).
75 Barbara A. Rehm, RTC Plans to Dispose of
50 Thrifts in 1st Period, American Banker (January 16, 1990).
76 The RefCorp was a mixed-ownership
government corporation established by FIRREA to provide the RTC with $30
billion of its initial $50 billion in funding (see Davison , 3537. RefCorp
bond offerings were made in October 1989 ($4.5 billion), January 1990 ($5
billion), April 1990 ($3.5 billion), July 1990 ($5 billion), October 1990 ($5
billion), and January 1991 ($6.9 billion). See Oversight Board press releases
dated October 18, 1989; January 17, 1990; April 4, 1990; July 3, 1990; October
2, 1990; and January 2, 1991.
77 Barbara A. Rehm, RTC Plans to Dispose of
50 Thrifts in 1st Period, American Banker (January 16, 1990).
78 Steve Klinkerman, RTC Efforts to Get Cash
Could Raise Thrift Rates, American Banker (January 19, 1990).
79 U.S. House Committee on Banking, Finance
and Urban Affairs, Oversight Hearings (January 2325, 1990), 2728.
80 Barbara A. Rehm, Administration Plans to
Find Capital for RTC, American Banker (February 1, 1990).
81 Robert M. Garsson, Justice Says RTC Can
Use Federal Bank for Capital, American Banker (February 16, 1990).
82 S&L Rescuers Are Cleared to Use
Short-Term Funds, Wall Street Journal (February 16, 1990). The Treasury
announced that it would increase the amounts of its weekly auctions of
short-term bills and 52-week bills to raise the needed funds (U.S. to Boost
Level of Borrowing to Fund S&L Industry Bailout, Wall Street Journal
[February 21, 1990]). Much of these funds was not spent during the first
quarter because thrift resolutions slowed; however, as the RTC contemplated a
major drive to resolve 141 institutions in the second quarter, it was
authorized to borrow up to $45.3 billion (Thrift Agency Is Cleared to Borrow
$45.3 Billion, Wall Street Journal [April 12, 1990]).
83 David Rogers, Bill Seeks to End Count of
RTC Fund under Deficit Law, Wall Street Journal (April 26, 1990). Treasury
Secretary Brady, in response to a question in May, noted, You dont want to
complicate an already complicated set of budget negotiations . . . by swinging
it back and forth with respect to working capital. It could be $50 billion
worse this year and $30 billion better the next year, and it would raise havoc
with the Gramm-Rudman target (U.S. Senate Committee on Banking, Housing, and
Urban Affairs, Hearing on the Semiannual Report [May 23, 1990], 67). This was
also the position of the chairman of the Federal Reserve Board, Alan Greenspan,
who in January had said that the basic purpose of Gramm-Rudman-Hollings was to
raise total domestic savings and that since RTC working capital was a transfer
of assets, it would have no effect on domestic savings and should be excluded
from the GRH calculations. He was also concerned about the false effects that
receipts from asset sales might have on the budget in later years. See U.S.
Senate Committee on Banking, Housing, and Urban Affairs, Second Oversight
Hearing (January 31, 1990), 7677.
84 Budget Enforcement Act of 1990, Sec. 13101
(specifically, see sec. 252[b]), 104 STAT 1388-581.
85 U.S. House Committee on Banking, Finance
and Urban Affairs, Semiannual Report and Appearance by the Oversight Board
(June 14, 1990), 15. This description is a simpler way of presenting the
limitation. More formally, the sum of contributions received from RefCorp plus
outstanding obligations could not exceed the RTCs available cash plus 85
percent of the fair market value of its other assets by more than $50 billion.
Reacting to the 1988 FSLIC deals, Rep. Henry Gonzalez had insisted on including
a provision that would limit the RTCs outstanding obligations.
86 U.S. House Committee on Ways and Means,
Additional Financing Costs (September 19, 1990), 35.
87 Debra Cope and Robert M. Garsson, Brady
Expected to Warn Congress RTC May Run Out of Cash by Fall, American Banker
(June 13, 1990).
88 U.S. House Committee on Banking, Finance
and Urban Affairs, Funding the Resolution Trust Corporation (July 30, 1990),
89 As $18.8 billion is equivalent to 15% of
$125.33 billion, the latter figure was the effective limit on RTC working
capital borrowing. Outstanding FFB working capital borrowings peaked in 1991
at approximately $63 billion.
91 Treasury Scrambling for Funds for RTC,
National Mortgage News (August 6, 1990).
92 U.S. House Committee on Ways and Means,
Additional Financing Costs (September 19, 1990) 5, 34. See also Paulette
Thomas, Seidman Totals Growing Costs of S&L Rescue, Wall Street Journal
(September 20, 1990).
93 Barbara A. Rehm, House Bank Panel Votes
Added Funds to RTC, American Banker (October 24, 1990).
94 RTC Board of Directors Meeting, October
95 Stephen Labaton, Loophole to Be Used to
Keep Bailout Afloat, New York Times (November 2, 1990).
96 U.S. General Accounting Office,
Obligations Limitation: Resolution Trust Corporations Compliance as of
September 30, 1990 (1991), 45.
97 RTC to Borrow Working Capital; Regulators
Avoid Funding Halt, BNAs Banking Report 55 (November 5, 1990), 747-48.
98 RTC Board of Directors Meeting, November
99 The GAO noted that the exclusion of
Treasury contributions effectively eliminated the 15 percent cash reserve
feature and resulted in a potentially misleading assessment of the RTCs
ability to fund any future losses resulting from assets sales at less than
their recorded value, and suggested that FIRREA be amended to fix this problem
(U.S. GAO, Obligations Limitation as of December 31, 1990 (1991), 67. The GAO
would later note that the Resolution Trust Corporation Funding Act of 1991,
which provided an additional $30 billion in loss funds (see the relevant
section of this article for a discussion of the 1991 law), made the FIRREA
obligations limitation formula even more misleading because the 1991 law did
not amend the formula; thus, the additional funding was excluded from the
calculation. In fact, Congress never changed the note cap formula, even as
further laws (not only in 1991 but also in 1993) provided additional loss
funds, and the obligations limitation never again became a constraint on RTC
operations. Indeed, the GAO ceased publishing a calculation of the obligations
limitation. (However, both the Senate and the House had included a revised
obligations limitation formula in their abortive attempts to pass new funding
legislation at the end of 1990 For the 1990 bills, see S. 3222 and H.R. 5891,
101st Cong., 2nd sess.)
100 Paulette Thomas, Latest Estimates Show
Thrift Bailout May Cost $24 Billion over Allocation, Wall Street Journal
(January 25, 1990).
101 Robert M. Garsson, 2nd Thrift Bill Takes
Shape, but Congress Is Reluctant, American Banker (January 22, 1990).
102 Paulette Thomas, Resolution Trust
Expected to Offer an Alternative to Cheap Liquidation, Wall Street Journal (March
103 Robert M. Garsson, Pols Shrug Off GAO
Estimate of Bailout Cost, American Banker (April 10, 1990).
104 Nathaniel C. Nash, Savings Failures
Expected to Soar, the Treasury Says, New York Times (May 24, 1990).
105 Charles Schumer, The S&L Horror
Show: Act II, New York Times (July 24, 1990).
106 Treasury Scrambling for Funds for RTC,
National Mortgage News (August 6, 1990).
107 See H.R. 5029, Resolution Trust
Corporation Financing Amendments of 1990, introduced on June 13, 1990, by Rep.
Paul Slattery. The bill was never acted on.
108 Paulette Thomas, Seidman Totals Growing
Costs of S&L RescueCongress, in Election Year, Concocts New Tax Ideas
Aimed at Paying the Tab, Wall Street Journal (September 20, 1990).
109 Stephen Labaton, Savings Bailout Chief
Asks for $100 Billion, New York Times (September 20, 1990).
110 U.S. Senate Committee on Banking,
Housing, and Urban Affairs, Resolution Trust Corporation Funding Act of 1990
(October 19, 1990).
111 Stephen Labaton, Savings Bailout May Be
Hindered By Political Impasse Over Money, New York Times (October 19, 1990),
and A Patrician and Populist Clash in Savings Bailout, New York Times
(October 22, 1990).
113 See U.S. House Committee on Banking,
Finance and Urban Affairs, Resolution Trust Corporation Funding Act of 1990
(October 27, 1990).
114 Stephen Labaton, House Panel Approves
More Funds for Bailout, New York Times (October 24, 1990).
115 Congressional Record. S. 17722 (October
116 Paul Duke, Jr., Congress Fails to
Provide More Funding for S&L Bailout, Raising Threat to RTC, Wall Street
Journal (October 29, 1990).
117 Gonzalez said he wanted to begin hearings
after the election and before the new Congress was seated (Barbara Rehm and
Robert M. Garsson, Gonzalez Urges Hearings This Fall on RTC, American Banker
[October 31, 1990]).