Failed Thrift

Sunbelt Savings Bank was created in August 1988 when the Federal Home Loan Bank Board consolidated eight failed Texas thrifts, and it has been under federal control ever since. This lengthy period of federal operation is traceable to (1) a lack of funding to liquidate Sunbelt before passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; (2) transfers of responsibility and staff from the Federal Savings and Loan Insurance Corporation (FSLIC) to the Federal Deposit Insurance Corporation (FDIC); and (3) a belief by agency officials that Sunbelt's management was competent and would not significantly increase the ultimate resolution costs. GAO cannot determine how much money the government might have saved or lost by not resolving Sunbelt earlier because the necessary data are not yet available. Some of the costs of running Sunbelt could have been avoided, however. Most significantly, the money Sunbelt borrowed to help fund its liquidity needs cost the government about $53 million more than if it had been borrowed from the Department of the Treasury. Further, expenses authorized by FSLIC and FDIC to operate and improve Sunbelt as a going concern in anticipation of selling it as a whole thrift may not be fully recovered.

GAO found that: (1) the Federal Savings and Loan Insurance Corporation (FSLIC) did not resolve the eight thrifts subsequently consolidated as the bank because no eligible acquirer came forward and FSLIC did not have the estimated $7.4 billion required to pay off insured deposits; (2) FSLIC determined that consolidating the thrifts into one institution would cost about $400 million less than liquidating the eight thrifts under a 10-year assistance agreement; (3) the Office of Thrift Supervision (OTS) held off on closing the bank and placing it in Resolution Trust Corporation (RTC) conservatorship because OTS had confidence in the bank's management and was aware of the Federal Deposit Insurance Corporation's (FDIC) plans to market and resolve the thrift; (4) the ultimate cost of the bank's resolution will not be known until after all of its assets are sold, which could take many years, but when RTC resolves the thrift it will be required to prepare an estimate of the total resolution cost; (5) the money the bank borrowed from the Federal Home Loan Bank of Dallas to help fund its liquidity needs cost the government about $53 million more than if it had borrowed the money from the Treasury; and (6) some expenses authorized by FSLIC and FDIC to operate and improve the bank as a going concern in order to sell it as a whole thrift may not be fully recovered.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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