Failed Thrift:

Lengthy Government Control of Sunbelt Savings Bank

GGD-92-82: Published: Apr 28, 1992. Publicly Released: Apr 28, 1992.

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James L. Bothwell
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Pursuant to a congressional request, GAO reviewed: (1) why a federal savings bank has remained under government control since August 1988; and (2) the costs and benefits of this control.

GAO found that: (1) the Federal Savings and Loan Insurance Corporation (FSLIC) did not resolve the eight thrifts subsequently consolidated as the bank because no eligible acquirer came forward and FSLIC did not have the estimated $7.4 billion required to pay off insured deposits; (2) FSLIC determined that consolidating the thrifts into one institution would cost about $400 million less than liquidating the eight thrifts under a 10-year assistance agreement; (3) the Office of Thrift Supervision (OTS) held off on closing the bank and placing it in Resolution Trust Corporation (RTC) conservatorship because OTS had confidence in the bank's management and was aware of the Federal Deposit Insurance Corporation's (FDIC) plans to market and resolve the thrift; (4) the ultimate cost of the bank's resolution will not be known until after all of its assets are sold, which could take many years, but when RTC resolves the thrift it will be required to prepare an estimate of the total resolution cost; (5) the money the bank borrowed from the Federal Home Loan Bank of Dallas to help fund its liquidity needs cost the government about $53 million more than if it had borrowed the money from the Treasury; and (6) some expenses authorized by FSLIC and FDIC to operate and improve the bank as a going concern in order to sell it as a whole thrift may not be fully recovered.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: As of August 20, 1993, RTC has concluded that it cannot determine with any certainty the financial impact of the delay in resolving Sunbelt. Thus, it will not be implementing the recommendation.

    Recommendation: The Chief Executive Officer, RTC, should instruct his staff to compare the RTC total resolution cost estimate with the estimated cost of an earlier liquidation to calculate whether there was a financial cost of the delay in resolving Sunbelt and, if so, the extent of such cost.

    Agency Affected: Resolution Trust Corporation


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