The Resolution Funding Corporation

By LaRue Gibson on March 24, 2023

LRG Wealth Advisors offers this history of the 1989 Savings and Loan Crisis. We provide the historical and informational content to inform
our constituents of the substantial tools the government has brought and can bring to bear to address a banking crisis. We hope this
information will provide perspective and confidence as the banking crisis of 2023 plays out.

The Resolution Funding Corporation (REFCORP) was a temporary agency created by the U.S. Congress in 1989 as part of the Financial
Institutions Reform, Recovery and Enforcement Act (FIRREA) to deal with the savings and loan (S&L) crisis. The S&L crisis began in the
1980s and was caused by a combination of factors including deregulation, high-risk lending practices, and fraud. The crisis resulted in the failure of over 1,000 S&Ls, costing taxpayers over $150 billion.

Background:
In the early 1980s, the U.S. economy was in a recession and interest rates were high. Many S&Ls were struggling to attract deposits and make loans at a profit. In response, regulators began to relax restrictions on S&Ls, allowing them to make riskier investments and offer higher interest rates to attract depositors. This led to a boom in the S&L industry, but it also encouraged many S&Ls to take on excessive risks.

By the mid-1980s, many S&Ls had invested heavily in risky ventures such as commercial real estate and energy projects, which were not
performing as expected. At the same time, many S&Ls were experiencing large withdrawals of deposits as interest rates rose, making it difficult for them to meet their obligations. As a result, many S&Ls began to fail, causing significant losses to depositors and the federal government.

Creation of REFCORP:
In response to the S&L crisis, Congress passed FIRREA in 1989. The law created the REFCORP, a temporary agency tasked with raising
funds to pay for the cleanup of the S&L crisis. REFCORP was authorized to issue up to $50 billion in bonds, which would be guaranteed by the U.S. government. The funds raised through the sale of these bonds would be used to aid failed S&Ls and to pay for the costs of liquidating failed institutions.

REFCORP was also responsible for managing the assets of the failed S&Ls, which were transferred to the newly created Resolution Trust
Corporation (RTC). The RTC was responsible for liquidating these assets and recovering as much money as possible to pay back the bonds issued by REFCORP.

Successes and failures:
REFCORP was successful in raising funds to pay for the cleanup of the S&L crisis. By the time it was dissolved in 1996, it had raised over
$32 billion through the sale of bonds. The funds were used to pay for the costs of liquidating failed S&Ls and to reimburse depositors who
had lost money in failed institutions.

However, the cleanup of the S&L crisis was not without its problems. The RTC faced significant challenges in liquidating the assets of failed
institutions, many of which were difficult to sell. In addition, the cost of the cleanup was much higher than originally anticipated, with the final cost to taxpayers estimated to be over $150 billion.

Conclusion:
REFCORP was a temporary agency created to deal with the savings and loan crisis of the 1980s. Its primary purpose was to raise funds to
pay for the costs of liquidating failed S&Ls and to reimburse depositors who had lost money in these institutions. While it was successful in raising funds, the cost of the cleanup was much higher than anticipated, and the cleanup was not without its challenges. Nonetheless, REFCORP played a critical role in resolving the S&L crisis and preventing further damage to the U.S. financial system.