Summary

From 1980 through 1992, more than 1,300 savings and loans failed. To stem losses and foster depositor discipline, Congress required the Resolution Trust Corporation (RTC) to resolve failed thrifts at the least possible cost to RTC. RTC must follow specific rules in calculating the cost of resolution alternatives and document its evaluation of those costs. In reviewing RTC's 1992 compliance with the least-cost provisions, GAO found that three of RTC's corporate policies raised compliance questions. These policies (1) did not ensure that uninsured depositors could absorb their share of thrift losses if necessary to achieve least costly resolutions; (2) require RTC to estimate the cost of liquidating thrifts in conservatorship as of the conservatorship state date; or (3) require RTC to evaluate other available resolution methods before downsizing. RTC defended these policies, citing the backlog of thrifts awaiting resolution in 1992 and the lack of funding for resolutions for much of that year. In any case, RTC changed its policies on uninsured depositors in September 1993, a move that should allow RTC to better comply with the least-cost provisions. With its recently appropriate funding and few additional thrifts expected to fail in 1994 or 1995, RTC should be able to further modify its corporate policies to ensure full compliance with the law. For resolution decisions made in 1992, RTC had adequate procedures for calculating, evaluating, and documenting the cost of resolution alternatives. These procedures, however, were not always adhered to, particularly the documentation of evaluations and assumptions. Further, RTC did not always document the rationale for the marketing strategy it chose.

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.