Financial Institutions Reform, Recovery and Enforcement Act of 1989
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The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) [1] is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s. It established the Resolution Trust Corporation to close hundreds of insolvent thrifts and provided funds to pay out insurance to their depositors. It transferred thrift regulatory authority from the Federal Home Loan Bank Board to the Office of Thrift Supervision. Contents[show] |
[edit] Deposit insurance
FIRREA created two new deposit insurance funds. It abolished the Federal Savings and Loan Insurance Corporation (FSLIC); the fund originally administered by FSLIC became the Savings Association Insurance Fund (SAIF). It also created the Bank Insurance Fund (BIF). Both of these funds were to be administered by the Federal Deposit Insurance Corporation. This section of FIRREA was amended by the Federal Deposit Insurance Reform Act of 2005, which consolidated the two funds. Critics of FIRREA assert that, rather than respond effectively to the S & L crisis, the act actually exacerbated the crisis and made it a true disaster.[edit] Savings and loan industry
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 dramatically changed the savings and loan industry and its federal regulation. Here are the highlights of this legislation, signed into law August 9, 1989 [2]:- The Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC) were abolished.
- The Office of Thrift Supervision (OTS), a bureau of the Treasury Department, was created to charter, regulate, examine, and supervise savings institutions.
- The Federal Housing Finance Board (FHFB) was created as an independent agency to oversee the 12 federal home loan banks (also called district banks).
- The Savings Association Insurance Fund (SAIF) replaced the FSLIC as an ongoing insurance fund for thrift institutions (like the FDIC, the FSLIC was a permanent corporation that insured savings and loan accounts up to $100,000). SAIF is administered by the Federal Deposit Insurance Corp.
- The Resolution Trust Corporation (RTC) was established to dispose of failed thrift institutions taken over by regulators after January 1, 1989. The RTC will make insured deposits at those institutions available to their customers.
- FIRREA gives both Freddie Mac and Fannie Mae additional responsibility to support mortgages for low- and moderate-income families.
[edit] Other regulations
FIRREA allowed bank holding companies to acquire thrifts. It established new regulations for real estate appraisals. In addition, the Act established Appraisal Subcommittee (ASC) within the Examination Council of the Federal Financial Institutions Examination Council.It also established new capital reserve requirements.
It increased public oversight of the process. It required the agencies to issue Community Reinvestment Act ("CRA") ratings publicly and do written performance evaluations using facts and data to support the agencies' conclusions. It also required a four-tiered CRA examination rating system with performance levels of "Outstanding," "Satisfactory," "Needs to Improve," or "Substantial Noncompliance."[3] These rules increased pressure on banks to make mortgage home loans to inner-city and rural areas.[4]
[edit] Appraisal standards
Title XI of FIRREA empowered federal mortgage regulators to adopt standards for real estate appraisal and promulgate licensing requirements to the states. To accomplish this, the Appraisal Subcommittee (ASC) was formed, with representatives from the various Federal mortgage regulatory agencies. The ASC provides oversight and input to the Appraisal Foundation, which in turn promulgates the Uniform Standards of Professional Appraisal Practice and the minimum standards for appraisal licensure[5].[edit] External links
- Text of Legislation, H.R. 1278 (from Thomas)
- FIRREA Bibliography from the FDIC
- About the Federal Financial Institutions Examination Council (FFIEC)
- Information about FIRREA from Yahoo! Financial Glossary
[edit] References
- ^ "Public Law 101-73: Financial Institutions Reform, Recovery and Enforcement Act of 1989". The Library of Congress. 1989-08-09. http://thomas.loc.gov/cgi-bin/bdquery/z?d101:HR01278:. Retrieved 2009-04-16.
- ^ FIRREA — It's Not a New Sports Car. The Credit World. September-October 1989. p. 20.
- ^ Sandra F. Braunstein, Director, Division of Consumer and Community Affairs, The Community Reinvestment Act, Testimony Before the Committee on Financial Services, U.S. House of Representatives, 13 February 2008.
- ^ Howard Husock, The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities, City Journal (New York), publication of Manhattan Institute for Policy Research, January 1, 2000.
- ^ The Appraisal Foundation
