1992 Thrift Resolutions:

RTC Policies and Practices Did Not Fully Comply With Least-Cost Provisions

GGD-94-110: Published: Jun 17, 1994. Publicly Released: Jun 17, 1994.

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Pursuant to a legislative requirement, GAO reviewed the Resolution Trust Corporation's (RTC) compliance with legislative requirements that it use the least costly method to resolve failed thrifts, focusing on: (1) 1992 RTC resolution policies and decisions, specifically its calculation and documentation of the costs of resolution alternatives; and (2) marketing aspects of the RTC resolution process.

GAO found that: (1) in 1992, 59 thrifts were already in conservatorship, so RTC could only apply the least-cost provisions to the thrifts' remaining assets; (2) RTC resolved 9 other failed thrifts through the accelerated resolution program and sold one thrift in its entirety at no cost to RTC; (3) RTC placed another 49 failed thrifts in conservatorship and downsized most of them, but it could not resolve them because it did not have adequate funds for resolutions; (4) three RTC corporate policies in effect in 1992 conflicted with the least-cost requirements, but RTC officials cited the backlog of thrifts awaiting resolution and the lack of funds as reasons for noncompliance; (5) RTC did not always adhere to its resolution procedures for calculating, evaluating, and documenting the cost of resolution alternatives in its 1992 resolution decisions; and (6) RTC did not document the rationale for its marketing strategies for selling the failed thrifts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: RTC disagrees with GAO's interpretation of when the liquidation cost estimate should be calculated. RTC does not plan to fully comply with the recommendation. GAO's review of resolutions done between January 1993 and June 1994 found that, where applicable, RTC effectively implemented the recommendation during the process in which RTC determined the advance dividend to pay uninsured depositors. Further, as of March 1995, RTC had no thrifts in conservatorships and planned to resolve any failing thrifts via its accelerated resolution program, which will enable RTC to make timely estimates of liquidation costs.

    Recommendation: The Deputy and Acting Chief Executive Officer, RTC, should revise RTC policies to require that the agency estimate liquidation costs as of the earliest of the date: (1) a conservator is appointed; (2) a receiver is appointed; or (3) of a determination to provide assistance to a failing or failed thrift.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: RTC does not intend to comply with this recommendation. RTC effectively complied with the recommendation, in that, because of lower interest rates, it found that retaining high-quality assets provided conservatorships a better return than selling the assets and investing the proceeds in lower-yielding Treasury securities. This enabled RTC to retain the assets until close to or at the resolution date before selling them. Also, RTC officials said they plan to resolve all future troubled thrifts via ARP, which renders the recommendation moot.

    Recommendation: The Deputy and Acting Chief Executive Officer, RTC, should revise RTC policies to require that the agency evaluate the resolution methods that are potentially available before selling assets of a failed thrift.

    Agency Affected: Resolution Trust Corporation

  3. Status: Closed - Implemented

    Comments: RTC now adequately documents (in the cost summary and cost test) the consideration given all nonconforming bids.

    Recommendation: The Deputy and Acting Chief Executive Officer, RTC, should direct the Division of Resolutions to require that the consideration given all nonconforming bids received be documented.

    Agency Affected: Resolution Trust Corporation

  4. Status: Closed - Implemented

    Comments: RTC adequately documents the rationale for its preferred marketing strategy.

    Recommendation: The Deputy and Acting Chief Executive Officer, RTC, should direct the Division of Resolutions to revise RTC policies to require that RTC document the rationale for the agency's preferred marketing strategy for resolving a failed thrift.

    Agency Affected: Resolution Trust Corporation

 

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