The Resolution Trust Corporation (RTC) was a temporary federal agency established in 1989 to oversee the disposal of assets from failed savings and loan (S&L) institutions. It was created by Congress in the wake of the 1980s S&L crisis, in which hundreds of depository institutions slipped into insolvency due to unsound banking practices. By the time the RTC closed in December 1995, it had managed some 747 S&L closures and sell-offs valued at $460 billion in assets and $225 billion in deposit liabilities. The RTC's work affected no less than 25 million U.S. bank accounts, and while it was in operation, it operated the federal government's fourth-largest off-site records system.
The RTC functioned by becoming either a conservator or a receiver for an insolvent S&L when the Office of Thrift Supervision (OTS) determined the S&L was being operated unsoundly. If the RTC became conservator, the S&L's financial condition was further evaluated and was prepared for sale with designated assets. The S&L's deposits and franchises were marketed to prequalified bidders. Once the question of the failed S&L's ownership was resolved, any remaining assets were held in receivership for disposition and were sold according to RTC guidelines.
The RTC was established on 9 August 1989, when the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) was signed into law. The law provided for a major restructuring of the nation's thrift industry and a reorganization of the federal agencies that oversaw the industry. These reforms were necessary not only because of widespread insolvency in the private sector, but also because the federal safety net, the Federal Savings and Loan Insurance Corporation (FSLIC), had been bankrupted by the crisis. The RTC's mission was threefold:
The RTC created the Small Investor Program (SIP) in June 1993 to meet the needs of investors with moderate levels of investment capital. Under the SIP, the RTC offered real estate assets on an individual basis for at least 120 days, either through a broker, auction, or sealed bid sale. Assets marketed under SIP were offered with an emphasis on geographic focus to attract small investors who wanted to invest in their local market.
The RTC sold its real estate owned properties (REOs), loans, and other assets (including subsidiaries, mortgage servicing rights, and furniture, fixtures and equipment) depending upon product type, geographic location, complexity, market demand and marketing, and holding costs. Individual sale, sealed bid sale, open outcry auctions, and securitization were among the strategies the RTC used.
Some select assets, including short-term loans, were held to maturity. Loans were packaged and sold primarily through open outcry auctions, sealed bid sales, or securitization. Individual sale was the strategy the RTC uses to make real estate assets that were immediately deliverable upon closing available to the public. The sealed bid sale method was often selected when two or more parties were interested in the same asset or when a sealed bid sale could effectively establish a high level of competition that could command a higher sale price.
Open outcry auctions were used to sell REOs, loans, and furniture, fixtures, and equipment (FF&E). Auctions provided the opportunity to expose a large volume of assets to the marketplace and dispose of them quickly. Minimum bids or reserve prices were usually established, although the RTC also conducted absolute auctions or auctions with no minimum reserve on some of its smaller assets and FF&E. Securitization is the process of restructuring cash flows from pools of whole loans into securities that are liquid assets.
Among the assets in the RTC's inventory were:
Overall, the RTC was considered a successful mechanism for disposing of assets and recovering funds for depositors, although critics claimed that it didn't obtain particularly high returns on the assets it sold. It also completed its work faster than anticipated. As the RTC's work was drawing to a close, Congress passed the RTC Completion Act of 1993 to structure its dismantling. The act called for a transition of records and responsibilities from the RTC to the Federal Deposit Insurance Corporation (FDIC), which assumed all of the RTC's assets and liabilities.
Barrese, Edward F. "The Resolution Trust Corporation at Sunset: Transferring a Records Management Function." Records Management Quarterly, October 1996.
Gupta, Atul, Richard L.B. LeCompte, and Lalatendu Misra. "Taxpayer Subsidies in Failed Thrift Resolution: The Impact of FIRREA." Journal of Monetary Economics, July 1997.
"Treasury Secretary Says RTC Will Close Early." Journal of Accountancy, September 1995.