§1441b Resolution Funding Corporation Established

Summary

Creates a corporation that must raise money and give it to the Resolution Trust Corporation so the RTC can do its work. The corporation is run by a three‑person board: the director of the Office of Finance of the Federal Home Loan Banks and two Federal Home Loan Bank presidents chosen by the Thrift Depositor Protection Oversight Board. One president’s first term is 2 years and the other’s is 3 years, then terms are 3 years. A member leaves the board when they leave the office that got them appointed. The Oversight Board picks the board chair. The corporation has no paid employees and board members get no pay. The board may use Federal Home Loan Bank staff and the Federal Home Loan Banks must pay the corporation’s administrative costs in a fair share way. The Oversight Board can make rules the board must follow. The corporation can do only certain things: sell nonvoting stock to the Federal Home Loan Banks, buy capital certificates from the RTC and give money to the RTC, borrow by issuing bonds and other obligations (up to $30,000,000,000), charge assessments, make contracts, and sue or be sued. The Oversight Board must get enough money so required transfers can be made and so a special Principal Fund holds noninterest Treasury instruments whose face value equals the principal on the corporation’s debt. Each Federal Home Loan Bank must buy stock under limits tied to its reserves and retained earnings on December 31, 1988 and later additions, with annual adjustments based on an aggregate $300,000,000 benchmark. The first $1,000,000,000 of bank investments is split as follows: Boston 1.8629; New York 9.1006; Pittsburgh 4.2702; Atlanta 14.4007; Cincinnati 8.2653; Indianapolis 5.2863; Chicago 9.6886; Des Moines 6.9301; Dallas 8.8181; Topeka 5.2706; San Francisco 19.9644; Seattle 6.1422. Amounts above $1,000,000,000 are allocated by the Oversight Board using member asset shares, with special rules if a bank would exceed its limit (other banks buy for it, then get reimbursed from the deficient bank’s earnings with interest starting 2 years later; reimbursements come from a reserve account funded from net earnings and reimbursements and cannot exceed 20% of net earnings in any year). Interest on the corporation’s debt must be paid first from its own earnings, then from certain RTC proceeds, then from payments by each Federal Home Loan Bank equal to 20.0% of that bank’s net earnings if needed, then from sale proceeds, and finally by the Treasury as a backup (Treasury payments become a debt the corporation must repay on dissolution). The Director will adjust bank payment terms so the banks’ payments equal the present value of a $300,000,000 per year annuity that runs from issuance to final maturity and will report semiannually to Congress. Principal is repaid from the Principal Fund at maturity. Debt issued by the corporation can be lawful investments and traded like other bank obligations, and is generally tax‑exempt like Federal Home Loan Bank debt with a narrow tax rule exception; the SEC may exempt these securities from registration. The corporation’s debt is not guaranteed by the United States, the Federal Home Loan Bank System, the Federal Home Loan Banks, or the RTC. Surplus funds are invested in direct U.S. Treasury securities. The Oversight Board must send an audited annual report to the President and Congress by June 30 each year. When all obligations are paid, the corporation must be dissolved and the Oversight Board may finish its affairs. Definitions in the law include: administrative expenses (excludes interest and issuance costs), custodian fee (fees for holding and managing securities), Funding Corporation (the Resolution Funding Corporation), Funding Corporation Principal Fund (the separate zero‑coupon instrument account), issuance costs (fees, legal and offering costs), net earnings (the bank earnings measure used here), Thrift Depositor Protection Oversight Board (its members now and who will serve after the RTC ends), Secretary (the Treasury Secretary), and undivided profits (retained earnings after required reserves). The Oversight Board may make rules needed to carry out these duties. An appropriation for the Treasury backup was provided for fiscal year 1989 and each year after.