Resolving the Savings and Loan Crisis:

Billions More and Additional Reforms Needed

T-AFMD-90-15: Published: Apr 6, 1990. Publicly Released: Apr 6, 1990.

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GAO discussed the Federal Savings and Loan Corporation's (FSLIC) financial statements as of August, 1989, focusing on how much money would be needed to resolve the savings and loan crisis. GAO found that: (1) FSLIC needed $325 billion to pay off its obligations, resolve the problems of institutions awaiting resolution, pay interest on $30 billion in bonds, and pay some administrative expenses; (2) legislation authorized $50 billion to cover certain costs, but the Resolution Trust Corporation (RTC) needed to develop proposals to provide additional funds; (3) the actual costs needed to resolve troubled institutions depended on the extent of operating losses, the quality and value of their assets, and future interest rates; and (4) the funds necessary to pay for FSLIC obligations will come from the sales of assets in FSLIC receiverships, insurance premiums assessed against savings institutions until the end of 1991, and Treasury appropriations. GAO also found that: (1) the estimated cost to resolve the crisis did not include any interest Treasury would incur on funds it would have to borrow to provide its share of the total funds needed; (2) RTC had sufficient funds to start resolving the problems of institutions currently in conservatorship; and (3) fraud, insider abuse, and mismanagement were evident at each institution it reviewed.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Oversight Board, in consultation with FDIC, has estimated RTC funding needs and indicated various methods for Congress to provide the needed funds. This information has been stated in various testimonies before the House and Senate.

    Recommendation: The Chairman, RTC Oversight Board, in consultation with the Chairman, Federal Deposit Insurance Corporation (FDIC), should begin developing proposals to deal with the current total shortfall between the $50 billion the Financial Institutions Reform, Recovery, and Enforcement Act provided and the amount of funds RTC will need for resolutions, administrative expenses, and interest costs on any working capital funds RTC borrows.

    Agency Affected: Resolution Trust Corporation: Oversight Board

  2. Status: Closed - Not Implemented

    Comments: FDIC does not think information on total needs is reasonably estimable or useful. However, GAO is continuing to encourage development of such estimates since Congress needs "best estimates" of total cost in order to determine amounts and sources of funding.

    Recommendation: The Chairmen, RTC Oversight Board, and FDIC should jointly report at least semi-annually to Congress on the revised total cash needs, net costs, and sources of funds to pay for FSLIC obligations, RTC resolutions, and related costs.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Not Implemented

    Comments: The Oversight Board does not think information on total needs is reasonably estimable or useful. However, GAO is continuing to encourage development of such estimates since Congress needs "best estimates" of total cost in order to determine amounts and sources of funding.

    Recommendation: The Chairmen, RTC Oversight Board, and FDIC should jointly report at least semi-annually to Congress on the revised total cash needs, net costs, and sources of funds to pay for FSLIC obligations, RTC resolutions, and related costs.

    Agency Affected: Resolution Trust Corporation: Oversight Board

 

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