FDIC APPROVES GENERAL COUNSEL OPINION ON SOURCE OF FICO FUNDING
FOR IMMEDIATE RELEASE PR-66-96 (8-22-96)
Media Contact: Robert M. Garsson (202-898-6993)
The FDIC General Counsel issued a legal opinion today
which concludes that certain dividends from receiverships
transferred to the FDIC upon dissolution of the Federal Savings and
Loan Insurance Corporation (FSLIC) can be used to pay interest on
Financing Corporation (FICO) bonds if assessment income is no
longer adequate to meet interest and other expenses. The opinion
further concludes that liquidating dividends from Resolution Trust
Corporation (RTC) receiverships cannot be used for such purposes.
As a result, any recoveries by former RTC receiverships in the
goodwill cases would not be available to FICO.
The General Counsel opinion, which was approved by the
FDIC's Board of Directors, differentiates between two elements of
the FSLIC Resolution Fund, or FRF. One is FRF-FSLIC, which
manages receiverships inherited from the former FSLIC. The other
is FRF-RTC, which took responsibility for assets transferred from
the RTC when it went out of business December 31, 1995.
The legal opinion notes that the RTC, which Congress
established to take over the FSLIC's duties for resolving thrift
failures, was funded by the Resolution Funding Corporation
(REFCORP) and from appropriations. The RTC received no FICO
funding. Therefore, after all outstanding liabilities of the RTC have
been paid, the FDIC is to transfer the net proceeds of the RTC's
asset sales to REFCORP and to the Department of Treasury -- not
FICO was created in 1987 to recapitalize the former FSLIC.
FICO issued 30-year noncallable bonds in principal amounts of $8.1
billion that mature over a three-year period beginning in 2017.
However, FICO is at risk of default because the deposit base that
can be assessed to pay interest on the bonds has been shrinking.
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Congress created the Federal Deposit Insurance Corporation in 1933
to restore public confidence in the nation's banking system. The FDIC
insures deposits at the nation's 12,000 banks and savings associations
and it promotes the safety and soundness of these institutions by
identifying, monitoring, and addressing risks to which they are exposed.
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