§1441b Resolution Funding Corporation established

Summary

Creates a new corporation called the Resolution Funding Corporation to give money to the Resolution Trust Corporation so the RTC can do its job. The Funding Corporation is run by a three-person board: the director of the Federal Home Loan Banks’ Office of Finance and two Federal Home Loan Bank presidents chosen by the Thrift Depositor Protection Oversight Board. One of the two bank presidents serves an initial term of 2 years and the other 3 years, and later terms are 3 years. If a board member leaves the job they held when picked, they stop serving and the successor finishes the term. The board chair is chosen by the Oversight Board. The Funding Corporation has no paid employees, but it may use officers or staff of the Federal Home Loan Banks with approval. The Federal Home Loan Banks pay all administrative costs and a formula set by the Oversight Board decides how much each bank pays. Board members get no pay from the Funding Corporation. The Funding Corporation can only do specific things: sell nonvoting stock to the Federal Home Loan Banks; buy capital certificates from the RTC; borrow money and issue bonds, notes, or other debt (up to $30,000,000,000 total); charge assessments; enter into contracts; use a corporate seal; sue or be sued; and do other basic actions needed to carry out these powers. The Oversight Board must make sure the Funding Corporation raises enough money so it can transfer funds to the RTC and keep a separate Principal Fund of noninterest-bearing U.S. obligations whose total face value matches the principal of the Funding Corporation’s outstanding debt. Each Federal Home Loan Bank must buy stock in the Funding Corporation when required, subject to caps based on each bank’s reserves and retained earnings and adjusted by rules the Oversight Board sets. The first $1,000,000,000 of required bank investments is divided among the banks by fixed percentages listed in the law. Any required investments above $1,000,000,000 are allocated by the Oversight Board based on the assets of Savings Association Insurance Fund members. If a bank’s share is higher than its allowed maximum, other banks must temporarily buy stock on its behalf and the deficient bank must repay them over time from net earnings, with interest and limits on how much of its annual earnings can go into a reserve for repayment (no more than 20 percent of net earnings per year). The Funding Corporation may only issue debt if the Principal Fund’s noninterest-bearing instruments equal the principal amount of that debt. Interest on the Funding Corporation’s obligations is paid first from earnings on assets not in the Principal Fund, then from certain RTC proceeds, then by each Federal Home Loan Bank paying 20.0 percent of its net earnings each year until the banks’ payments equal the present value of an annuity equal to $300,000,000 per year (the Director may lengthen or shorten payment periods to match that present value, and banks may continue payments to the Treasury if needed). If those sources are still not enough, the FSLIC Resolution Fund may transfer proceeds, and finally the Secretary of the Treasury will pay the rest; such Treasury payments become a loan to the Funding Corporation to be repaid when it dissolves. On maturity, Funding Corporation debt is repaid from the Principal Fund. Proceeds from issuing obligations must be used to buy RTC capital certificates or refund earlier obligations. The Funding Corporation’s obligations are lawful investments and get tax treatment like Federal Home Loan Bank obligations, but they are not guaranteed by the Federal Home Loan Bank System, the banks, the United States, or the RTC and must plainly say so. The Oversight Board and the Funding Corporation must report annually, with audited financial statements and operating plans, to the President and Congress by June 30 following the year covered. Once all obligations are paid in full, the Funding Corporation must be dissolved, and the Oversight Board may finish any remaining business. Key defined terms include administrative expenses (does not include interest or issuance costs), custodian fee, the Funding Corporation Principal Fund, issuance costs, net earnings, the Thrift Depositor Protection Oversight Board (its members now and after RTC’s termination), the Secretary (Treasury), and undivided profits. The Oversight Board may make rules needed to carry out these duties.