Magazine article American Banker

RTC Seeking Approval to Pay Home Loan Banks with Notes

Magazine article American Banker

RTC Seeking Approval to Pay Home Loan Banks with Notes

Article excerpt

RTC Seeking Approval to Pay Home Loan Banks with Notes

WASHINGTON - The Resolution Trust Corp. is asking Congress for authority to repay in notes, rather than in cash, Federal Home Loan Bank loans to failed thrifts.

The plan would enable the RTC to avoid hefty cash outlays in paying off the secured loans of thrifts that it seizes.

Thrifts in government conservatorship repaid $33 billion in Home Loan bank advances from February 1989 and through last month. In 1990, at least $5.6 billion was repaid directly from the RTC's working capital funds.

The RTC typically repays the borrowings of failed thrifts to free the high-quality mortgage loans that collateralize Home Loan bank advances.

An Aid to Asset Sales

The RTC says it can sell these assets sooner by giving the regional Home Loan banks notes instead of cash. That would enable the RTC to deploy its cash more efficiently - by paying off high-cost deposits, for instance.

It would also cost less, because the RTC would avoid prepayment fees on the advances. Last year, the RTC paid $151 million in penalties.

Furthermore, the plan would cushion the 12 Home Loan banks, which serve as liquidity sources for member institutions, from the shock of sudden cash windfalls. Prepayment of billions of dollars of loans have left the Home Loan Bank System awash in liquidity and with few lucrative reinvestment options.

RTC notes would ease uncertainty by guaranteeing the steady income stream the Home Loan banks anticipated when they loaned funds to thrifts. That, in turn, could ease pressure on Home Loan banks' earnings and could bolster the value of their stock, which makes up 30% of S&L industry capital.

RTC Chairman L. William Seidman requested the debt-conversion authority June 21 before the Senate Banking Committee. The request was in an appendix to testimony on streamlining the bureaucracy of the thrift-bailout agency. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.