What Was the Resolution Trust Corporation (RTC)?
Let me tell you about the Resolution Trust Corporation, or RTC, which was a temporary federal agency that's now defunct. From 1989 to 1995, it primarily dealt with the savings and loan crisis of the 1980s, where roughly a third of these U.S. institutions failed over a decade. The RTC essentially turned into a huge property-management operation, sorting out what was then the biggest collapse of American financial institutions since the Great Depression.
The RTC handled failed financial institutions put into receivership by selling or merging troubled thrifts and integrating their assets back into the Federal Deposit Insurance Corporation (FDIC). It got the job done in about six years, starting slow but then accelerating by selling asset pools at steep discounts to private investors, which let the RTC share in any future profits from those pools.
In total, the RTC shut down 747 failed institutions holding $394 billion in assets, and it liquidated those assets as well.
Understanding the Resolution Trust Corporation (RTC)
The RTC's main goal was to get the maximum value from selling assets of failed S&Ls while keeping disruptions to real estate and financial markets to a minimum.
The problems that led to the RTC started back in the 1970s. The S&L crisis came from risky investments by many small, supposedly safe S&Ls in the 1970s and 1980s. Thousands failed after using depositors' passbook savings to buy fixed-rate home mortgages that weren't easy to sell. These institutions exploited a flawed federal policy where all S&Ls paid the same federal deposit insurance rate, regardless of how risky their assets were. This caused the Federal Savings and Loan Insurance Corporation to collapse, and then the FDIC stepped in to take over.
Pros and Cons of the Resolution Trust Corporation
The RTC drew plenty of criticism, including over its estimated $130 billion cost. Many people were upset about using taxpayer money to bail out private financial firms.
A bigger issue, though, was that the failing S&Ls didn't really threaten the global economy, global markets, or even the U.S. economy much. Most economists today don't blame the S&L crisis for the 1990-91 recession, for instance. Looking back, the risks from these small savings institutions failing seem minor compared to events like the 2008 Lehman Brothers collapse.
That said, you could argue that the RTC's experiences—especially pooling and packaging assets and letting the government benefit from market recoveries—helped shape decisions in later government bailouts.
Correction Note
Just to set the record straight, an earlier version of similar articles might have said the RTC closed institutions in conservatorship, but the correct term is receivership.
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