Obligations Limitation:

Resolution Trust Corporation's Compliance as of December 31, 1990

AFMD-92-4: Published: Oct 22, 1991. Publicly Released: Nov 22, 1991.

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Pursuant to a congressional request, GAO reviewed the Resolution Trust Corporations's (RTC) fourth-quarter compliance with the maximum obligation limit set forth in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which: (1) established a formula for calculating the maximum allowable obligations outstanding; and (2) provided $50 billion in financing to resolve troubled savings and loan institutions placed into conservatorship or receivership from January 1, 1989 through August 9, 1992.

GAO found that: (1) as in the third-quarter report, RTC did not include $18.8 billion of the Department of the Treasury's funding when calculating its fourth-quarter adjusted obligation level; (2) as a result of this change in methodology, the adjusted obligation levels calculated in the first and second quarters are not comparable with those calculated in the third and fourth quarters; (3) if RTC had included Treasury funding in its calculation, its fourth quarter adjusted obligation level would be about $1.7 billion over the $50 billion provided by FIRREA and RTC would be precluded from incurring any additional obligations; (4) until RTC has sufficient experience in selling real estate and troubled loans secured by real estate, no basis exists to assess whether its estimated recovery values are reasonable, since the amounts recovered from asset sales are dependent on the behavior of commercial and other real estate markets; (5) the obligation limit formula provided cash reserves to cover possible future losses due to overvaluation of RTC assets in receiverships; (6) the obligation limit's cash reserve feature serves as a valuable safeguard against the RTC need to request additional loss funds from Congress to repay working capital; and (7) GAO continues to support its previous recommendations that Congress consider reestablishing the cash reserve feature by amending the obligation limit formula established by FIRREA to include all funding sources.