Resolution Trust Corporation's Compliance as of March 31, 1991
AFMD-92-39, Mar 11, 1992
Pursuant to a congressional request, GAO provided its quarterly review of the Resolution Trust Corporation's (RTC) compliance with the maximum obligation limit set forth by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
GAO found that: (1) FIRREA established a formula for calculating the maximum allowable obligations outstanding and provided $50 billion in financing to resolve troubled savings and loan institutions placed into conservatorship or receivership between January 1989 and August 1992; (2) as originally implemented, the obligation limitation formula provides cash reserves to cover unexpected future losses on asset sales due to the overvaluation of RTC assets in receiverships; (3) although RTC included all of the FIRREA-required categories when calculating its first-quarter adjusted obligation level, it did not include $18.8 billion of Treasury funding when making its calculation; (4) as a result of this practice, which RTC initially implemented in the third quarter of 1990, the adjusted obligation level RTC calculated for the first-quarter 1991 report is not comparable to those RTC calculated for the first and second quarters of 1990; (5) if RTC had included the Treasury funding in its calculation, its first-quarter 1991 adjusted obligation level would be nearly $10 billion over the $50 billion provided by FIRREA, and RTC would be precluded from incurring any additional obligations; and (6) a review of 60 receivership assets showed that the information in the individual assets files did not support the estimated market values for 11 assets, and raised questions regarding the existence and ownership of some assets included in the RTC recovery value calculations. GAO noted that it continues to support its previous recommendation that Congress consider amending the obligation limit formula to include all funding sources, since it believes that the cash reserve feature served as a valuable safeguard against the RTC need to request additional loss funds from Congress to repay working capital.