Resolution Trust Corporation (RTC)

Definition

The Resolution Trust Corporation (RTC) was a U.S. government-owned asset management company run between 1989 to 1995. It was created to liquidate assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan institutions (S&Ls) declared insolvent by the Office of Thrift Supervision (OTS) during the savings and loan crisis of the 1980s. The RTC enabled the bailout and recovery of these institutions by selling their assets and resolving their liabilities, effectively helping to stabilize the financial sector.

Phonetic

The phonetic pronunciation of “Resolution Trust Corporation (RTC)” is “Rez-uh-loo-shun Trust Kor-puh-ray-shuhn (Aar-Tee-See)”.

Key Takeaways

<ol><li>The Resolution Trust Corporation (RTC) was a U.S. government-owned asset management company run under the auspices of the Federal Deposit Insurance Corporation (FDIC). It was created in the aftermath of the savings and loan crisis of the 1980s to manage and sell the assets of failed institutions to recoup losses and pay off depositor claims.</li><li>RTC acted as a temporary institution. Congress created the RTC in 1989, and it operated until 1995 when it completed its work. It’s been regarded as one of the most successful government interventions in history, having managed and liquidated a significant portion of the Savings and Loan assets effectively and expediently.</li> <li>Overall, the RTC resolved 747 thrifts with total assets of $394 billion. Its actions helped to stabilize the thrift industry and protect the taxpayer by minimizing the cost to the federal deposit insurance funds and by maximizing recoveries from the estates of failed institutions.</li></ol>

Importance

The Resolution Trust Corporation (RTC) is a significant term in business/finance because of its key role in resolving the savings and loan (S&L) crisis in the United States from 1989 to 1995. Established by the U.S Congress under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), the RTC’s primary function was to liquidate assets, including real estate, mortgage loans, and failed thrift institutions, in an orderly way to minimize the impact on the economy. The RTC’s successful management of this crisis contributed to stabilization of the financial and real estate markets and protected countless savings account holders from potential losses, thereby reinforcing public confidence in the U.S. financial system. Therefore, the RTC also served as a valuable model for dealing with similar financial challenges in the future.

Explanation

The Resolution Trust Corporation (RTC) served a key purpose during the savings and loan crisis during the 1980s and 1990s in the United States. The purpose of the RTC was to alleviate the crisis by liquidating the assets of failed savings and loan institutions that were held by the Federal Savings and Loan Insurance Corporation (FSLIC). These combined situations had placed a significant strain on the FSLIC, prompting the need for a management solution. The RTC thus stepped in as a government intervention, acting as a temporary institution that helped to stabilize the situation, stave off the collapse of the industry, and shield taxpayers from bearing excessive costs tied to the bankruptcies.The RTC took over the management of the distressed assets, which included residential and commercial property loans as well as real estate itself. In their role, they identified ways to maximize value from the sale of these assets, aiming to speed up recovery from the crisis and to minimize losses to the federal deposit insurance funds. Their activities also included facilitating mergers and reorganizations of the institutions in question. By the time it concluded operations in 1995, the RTC had successfully managed to mitigate the fallout from the crisis by closing, selling or merging 747 institutions with assets totaling nearly $400 billion.

Examples

The Resolution Trust Corporation (RTC) was a U.S. government-owned asset management company run under the auspices of the Federal Deposit Insurance Corporation (FDIC). Active from 1989 to 1995, the RTC’s main role was to liquidate assets, mainly real estate-related assets such as mortgage loans, that it had seized from failed savings and loan associations (S&Ls). Here are three real-world examples of its interventions:1. American Savings & Loan Association: In 1988, the Lincoln Savings and Loan Association in Irvine, California, was seized by the Federal Home Loan Bank Board and handed over to RTC in 1989 due to aggressive business tactics, poor decision-making, and a lack of oversight. The seizure and subsequent insolvency was one of the largest of the crisis and cost the government over $3 billion, which was managed by RTC.2. Silverado Banking, Savings and Loan: RTC also intervened with Silverado Banking, Savings and Loan in Denver, Colorado, which collapsed in 1988 with over $1 billion in losses. The bank was highly involved in property and development loans, many of which were to supposed associates and a vast amount of these loans defaulted, leading to insolvency. RTC had to step in to manage and liquidate these assets.3. The 1991 Puerto Rico RTC Auction: A marathon five-day auction of more than 2,000 REO Properties (real estate owned properties) was held by the RTC. This was considered the largest real estate auction in U.S. history up until that point, and helped to sell assets accumulated from numerous failed savings and loans in Puerto Rico. In all these instances, the RTC was instrumental in protecting consumers and the overall stability of the banking system by managing and liquidating assets from failed S&L institutions.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Savings and Loan Crisis
• Federal Deposit Insurance Corporation (FDIC)
• Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)
• Asset Liquidation
• Office of Thrift Supervision (OTS)

Sources for More Information

• Federal Deposit Insurance Corporation (www.fdic.gov)
• Encyclopedia.com (www.encyclopedia.com)
• Investopedia (www.investopedia.com)
• The U.S. Department of the Treasury (www.treasury.gov)