What is the Resolution Trust Corporation?

The Resolution Trust Corporation (RTC) was a U.S. government agency formed in response to a financial crisis in which almost 750 savings and loan associations failed. Assets of the insolvent lending institutions were transferred to the RTC, which had the responsibility of disposing of them, primarily through four types of public-private partnerships. The U.S. Congress disbanded the Resolution Trust Corporation in 1995 after it had disposed of more than $680 billion U.S. Dollars (USD) worth of assets and deposit liabilities.

In 1989, the U.S. Congress passed the Financial Institutions Reform, Recovery and Enforcement Act, which, among other actions, created the RTC. During the decade of the 1980s, hundred of savings and loan institutions collapsed as a result of ill-conceived commercial and home real estate lending. The RTC gained control of assets and liabilities of banks that the U.S. Office of Thrift Supervision had declared insolvent.

The job of the Resolution Trust Corporation was to dispose of the assets, usually in a manner that reclaimed as much money as possible for the U.S. government. This was primarily accomplished through a variety of private equity partnerships in which the RTC financed the sale of the troubled assets to qualified investors, retained a portion of the ownership and participated in any profits. Lewis William Seidman, former head of the Federal Deposit Insurance Corporation (FDIC), was named head of the RTC.

There were four primary types of public-private partnerships the RTC used in its asset disposal. Multiple Investor Funds, for example, allowed private investors to buy a basket of RTC assets, such as home mortgage bundles or commercial real estate developments, sell the assets, and share in the profits. The assets were not identified individually prior to sale which typically allowed buyers to negotiate down the price due to the unknown risks. Mortgage Trusts functioned similarly to Multiple Investor Funds with two notable differences: the specific assets in the trust were known prior to sale and the price of the assets was based on a competitive bid process.

Land Funds were established to allow experienced developers to acquire real estate taken over by the RTC and develop it for commercial use. Profits from the resulting developments were shared between the developers and the Resolution Trust Corporation. Finally, the Judgment, Deficiency and Charge-Off Program sold assets that had been written off by the failed lenders. These assets usually were sold for pennies on the dollar because the buyers assumed the risk of collecting on assets that often were in default.

The Resolution Trust Corporation eventually disposed of more than $460 billion USD in loans and real property and $220 billion USD in deposit liabilities. Congress passed the RTC Completion Act in 1993, which called for winding down the temporary agency’s duties. In 1995, the RTC shut down it operations with remaining assets and duties being taking over by the FDIC.