Thrift Resolutions:

FSLIC 1988 and 1989 Assistance Agreement Costs Subject to Significant Uncertainties

AFMD-92-9: Published: Nov 18, 1991. Publicly Released: Nov 18, 1991.

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Pursuant to a legislative requirement, GAO reported on the costs of bank assistance agreements that the Federal Savings and Loan Insurance Corporation (FSLIC) entered into between January 1, 1988 and August 9, 1989, focusing on the: (1) reliability of the Federal Deposit Insurance Corporation's (FDIC) December 31, 1990 total projected payments; and (2) status of the Resolution Trust Corporation's (RTC) plans for using fiscal year (FY) 1991 appropriated funds to prepay notes and renegotiate or buy out the assistance agreements.

GAO found that FDIC: (1) projected that payments for 1988 and 1989 FSLIC financial assistance agreements would exceed $65.4 billion; (2) paid about $14.6 billion to meet assistance agreement-related obligations and projected that it would pay an additional $50.8 billion over the remaining terms; (3) projections were subject to uncertainties regarding continuing instability in local real estate markets, future interest rate fluctuations, the effectiveness of RTC oversight of asset management strategies, and the impact of potential cost-saving options, which could lead to material changes in actual payments; and (4) failed to comply with procedural and documentation requirements related to valuing acquired assets, decreasing the reliability of payment projections.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: To ensure that quarterly claim payment projections are prepared in accordance with its established procedures, RTC officials prepared and implemented general guidance for the review and approval of these projections. These guidelines include procedures to be applied to each of these projections and additional detailed review procedures to be applied to certain individual projections.

    Recommendation: To improve the reliability of claim payment projections and strengthen RTC oversight of assistance agreements, the President and Chief Executive Officer, RTC, should develop and implement testing procedures to ensure that quarterly claim projections are prepared in accordance with established procedures.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: To strengthen the claim payment projection procedures, RTC requires reviewers of the quarterly projections to document that specific factors used in projecting these payments are consistent with information contained in approved asset management plans.

    Recommendation: The President, RTC, should strengthen and modify the claim payment projection procedures by requiring RTC staff to compare factors used in projecting claim payments to those in approved asset management plans and to identify and explain any discrepancies.

    Agency Affected: Resolution Trust Corporation

  3. Status: Closed - Implemented

    Comments: To strengthen the claim payment projection procedures, RTC requires that reviewers of these projections document that they are based on the most current asset valuations.

    Recommendation: The President, RTC, should strengthen and modify the claim payment projection procedures by requiring RTC staff to use the most current data available on asset valuations.

    Agency Affected: Resolution Trust Corporation

 

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