Inside the FDIC

Chapter 3

Liquidation

By the early 1990s the Resolution Trust Corporation (RTC) and the FDIC were the country's largest owners of residential properties, commercial properties, raw land, and loans backed by residential and commercial real estate, and it was all for sale. The prices at which the two agencies sold these assets had a dramatic effect on real estate values, businesses, and local economies across the country.

Once closed, the FDIC assumed responsibility for everything owned by insolvent banks. The RTC did the same for insolvent savings-and-loans (S&Ls). Simply put, the FDIC and the RTC were to pay back the money that was owed by these failed institutions, and collect the money that was owed to them.

Money would have to be paid out first. Insured depositors at failed banks expected their reimbursement right away. Paying insured depositors quickly requires a lot of cash. Throughout its existence, the RTC had a more difficult time raising money than the FDIC did. The banking industry paid deposit insurance premiums to the FDIC's bank insurance fund, providing the FDIC with a relatively stable source of funds. When the FDIC needed more money, it simply raised deposit insurance premiums. The banking industry did not like it, but the process was sufficiently manageable that adequate funding generally was available to the FDIC. The RTC was dependent on Congress for funding, which greatly complicated the RTC's task.

Much of the money used to reimburse insured depositors ...