FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman andmembers of the Committee, I am pleased to appear today to testifyin support of H.R. 2343, the Thrift Depositor ProtectionOversight Board Abolishment Act. I have been designated bySecretary Rubin to serve as Acting Chairman of the OversightBoard. As you know, the Treasury Department transmitted to theCongress on June 11, 1997 a virtually identical legislativeproposal to abolish the Oversight Board and transfer certainremaining routine tasks to the Secretary of the Treasury. We arehappy to report that the other two members of the Oversight Board-- Federal Reserve Chairman Greenspan and Housing and UrbanDevelopment Secretary Cuomo -- support this proposal (seeAttachment 1). We greatly appreciate the Committee’sassistance in this effort to streamline federal governmentoperations, eliminate needless federal spending, and close thischapter on the savings and loan clean-up.

My statement willfirst briefly provide background information on the OversightBoard’s functions and history. I will then explain why webelieve the Oversight Board no longer needs to exist as adistinct federal entity, and how H.R. 2343 would serve the publicinterest.

Background

The crisis in thesavings and loan industry during the 1980s led to the depletionof the reserves of the Federal Savings and Loan InsuranceCorporation (FSLIC), the industry’s federal deposit insurer.By the end of the decade, FSLIC lacked funds to close hundreds offailing thrifts. In the Financial Institutions Reform, Recovery,and Enforcement Act of 1989 (FIRREA),

Congress created theResolution Trust Corporation (RTC) in response to this crisis.The RTC was charged with closing or selling these failingthrifts, managing and disposing of their assets, and protectingtheir insured depositors.

FIRREA alsoestablished the Resolution Trust Corporation Oversight Board,chaired by

the Secretary of theTreasury, primarily to provide general oversight of, and policyfor, the RTC, and to approve its funding requests. Subsequentlegislation in December 1991 redesignated the Oversight Board asthe Thrift Depositor Protection Oversight Board and charged itwith reviewing the RTC’s overall strategies, policies, andgoals and continuing to approve the RTC’s financial plans,budgets, and financing requests prior to implementation. Congressbelieved it was important to have strong oversight of an agencycharged with spending an extraordinary sum of taxpayer funds tocover losses in failed savings and loans and to make good on theGovernment’s commitment to insured depositors in thoseinstitutions. It expected the Oversight Board to review howeffectively the RTC managed and disposed of its enormous assetcaseload, and to ensure that the RTC was formulating andimplementing policies responsive to various goals, such asclosing insolvent thrifts at the least possible cost and pursuingrecoveries from wrongdoers.

From its inceptionin 1989 through its closure at the end of 1995, the RTC took overand resolved 747 failed thrifts having over $400 billion inassets at book value. The RTC ultimately disposed of all but $8billion of those assets (which were transferred to FDICmanagement, along with the RTC’s remaining liabilities).According to the latest General Accounting Office (GAO) financialstatement audit of the FDIC, the RTC incurred total costs of$86.4 billion. Overall S&L clean-up costs significantlyexceed that amount, however, because of losses incurred by FSLICbetween 1986 (when it officially became insolvent) and 1989 (whenthe RTC assumed responsibility for resolving failed thrifts).Based on GAO and FDIC estimates, overall S&L clean-up costssince 1986 totaled $156.4 billion, of which taxpayers financed$128.4 billion -- or 82 percent of the total cost.

The Oversight Boardwas in the forefront of numerous, ultimately successful effortsto secure sufficient funding for the RTC to complete its mission.The Oversight Board and its staff worked closely with the RTC toimplement management reforms, improve internal controls, andensure the prudent expenditure of taxpayer funds. It providedimportant guidance to the RTC in formulating effective policiesintended to meet RTC’s case resolution, asset sales,affordable housing, contracting, and other goals.

Thrifts today --those that survived the S&L debacle -- are profitable andwell-capitalized. The Office of Thrift Supervision has justreported that OTS-regulated thrifts had an average annualizedreturn on assets of 0.9 percent in the first half of 1997, verystrong by historical industry standards (an earnings performancenot consistently observed since the early 1960s). As a result oflast year’s special assessment on the industry, thrifts alsohave a fully capitalized deposit insurance fund. Only one thrifthas failed since the beginning of 1996.

Why the OversightBoard is No Longer Needed

When the RTC closedat the end of 1995, the Oversight Board's primary reason forexisting -- to oversee and monitor the RTC’s operations --ceased. Yet the Board -- reconstituted at the beginning of 1996to include the Secretary of the Treasury, the Chairman of theFederal Reserve Board, and the Secretary of HUD -- is notscheduled to go out of existence for another 33 years, when thelast of certain bonds issued to help pay for the savings and loanclean-up mature.

The Board retainsonly two programmatic responsibilities, consisting of largelyroutine tasks. It has formal responsibilities for the ResolutionFunding Corporation (REFCorp), which issued $30 billion of bondsfrom 1989 to 1991 as part of RTC’s initial funding. The lastof these bonds matures in the year 2030, which will trigger theOversight Board’s termination. The other programmaticresponsibility consists of non-voting membership, through the endof the Fiscal Year 1998, on the Affordable Housing AdvisoryBoard. The Affordable Housing Advisory Board was created by theRTC Completion Act of 1993 to advise the Oversight Board and theFDIC Board of Directors on affordable housing policy and toreview the plan for unifying the RTC and FDIC affordable housingprograms. (The Oversight Board, however, has no responsibilityfor FDIC properties, including those of the former RTC.) With theclosure of the RTC and the termination of the OversightBoard’s primary responsibilities, the Oversight Board’sstaff has declined from a peak of approximately 40 employees toonly one -- the Acting Executive Director.

Nonetheless, theBoard has continuing ministerial responsibilities, imposed forthe most part simply because it exists as a distinct entity ofthe Government. It must not only file an annual report of itsoperations, but also several periodic reports that are standardfor all federal agencies, including ethics, regulatory, Freedomof Information Act, Inspector General, and internal controlsreports (see Attachment 2). The Oversight Board has either tohold periodic meetings or keep Oversight Board members informedof any activity by some other means. Under current law, thesesorts of administrative obligations will continue until theOversight Board goes out of existence in 2030. While we have madeevery effort to minimize Oversight Board costs, includingpersonnel, space, equipment, supplies, and other overhead costs,we are unable to eliminate the remaining routine functions byexecutive action.

How H.R. 2343 WouldServe the Public Interest

H.R. 2343 wouldabolish the Oversight Board and transfer its formalresponsibilities for REFCorp to the Secretary of the Treasury.Because the REFCorp oversight tasks are largely routine, theTreasury could handle them with its existing staff. The Treasuryis a logical successor to this role because it pays approximately$2.3 billion of the $2.6 billion in annual interest payments onthe REFCorp bonds. The proposal would restructure the AffordableHousing Advisory Board to eliminate the non-voting seat held bythe Oversight Board.

Abolishing theOversight Board would streamline federal government operations byeliminating the need over the next 33 years to make agencyfilings of little significance. Eliminating the Oversight Boardwould also serve the taxpayers’ interest by cutting outunnecessary federal expenditures. We estimate that it would yieldannual savings of over $250,000 in personnel and overhead costs(see Attachment 3).

In conclusion, H.R.2343 would result in a more efficient and less expensive federalgovernment. The Oversight Board, like the RTC, has successfullyaccomplished its mission and is no longer necessary. We thank youagain, Mr. Chairman and members of the Committee, for your promptattention to this proposal. We stand ready to work with theCommittee and the Congress to ensure its expeditious enactment.