Counsel Says FDIC Can't Use Spoils of Goodwill Litigation To Fix Thrift

Any money the Federal Deposit Insurance Corp. wins through the supervisory goodwill litigation cannot be used to shore up the thrift insurance fund, according to the agency's general counsel.

The FDIC could gain as much as $8 billion as the receiver for more than 40 failed thrifts that sued the government after Congress in 1989 rescinded the favorable accounting rules it gave to the acquirers of troubled thrifts.

When the FDIC entered the lawsuits this summer, industry lawyers said the agency might be able to apply its winnings to the interest payments due annually on Financing Corp., or Fico, bonds floated in the late 1980s to finance the first S&L bailout.

Currently, the premiums thrifts pay into the Savings Association Insurance Fund cover the Fico interest. But as thrifts shift deposits out of the high-cost fund, regulators are worried that there won't be enough premium income to pay the $800 million due each year.

This fear of default is what's pushing lawmakers to enact a rescue for the savings association fund. If the FDIC's proceeds from the goodwill cases could be applied to the bonds, there would be less pressure on Congress to act.

But on Thursday, the FDIC's lawyers said any money recovered from thrifts that failed after Jan. 1, 1989, must be returned to the Treasury Department. That's when the Resolution Trust Corp., funded with taxpayer money, was created to clean up the industry.

All of the thrifts involved in the goodwill cases failed after the cutoff date, said FDIC General Counsel William Kroener 3d.

"The goodwill claims we have are all on RTC receiverships," he said.

The RTC received no Fico funds, the opinion stated. Congress intended that any funds left over after paying thrift creditors would be returned to the government, he said. "We believe we have the obligation to pay the money back to the Treasury," he said.

Mr. Kroener said the opinion was issued now because it is important that Congress knew the FDIC's position. If the thrift fund rescue is to be enacted this year, Congress must act next month before adjourning for the year.

If needed, the FDIC could tap into the dividends it has earned as the receiver for thrifts that failed before Jan. 1, 1989. However, that would amount to less than $50 million, the FDIC estimated.

The is the second FDIC legal opinion addressing funds available for Fico. Last year, the agency's lawyers reiterated their opinion that premiums paid into SAIF by banks that own thrift deposits cannot be used to pay Fico interest.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER