The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), is a

United States federal law The law of the United States comprises many levels of Codification (law), codified and uncodified forms of law, of which the supreme law is the nation's Constitution of the United States, Constitution, which prescribes the foundation of the ...

enacted in the wake of the

savings and loan crisis The savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of approximately a third of the savings and loan associations (S&Ls or thrifts) in the United States between 1986 and 1995. These thrifts were b ...

of the 1980s. It established the

Resolution Trust Corporation Resolution Trust Corporation (RTC) was a U.S. government-owned asset management company first run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets ...

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 The Federal Home Loan Bank Board (FHLBB) was a U.S. board created by the Federal Home Loan Bank Act in 1932 that governed the Federal Home Loan Banks (FHLB or FHLBanks), also created by the act; the Federal Savings and Loan Insurance Corporatio ...

to the

Office of Thrift Supervision The Office of Thrift Supervision (OTS) was a List of federal agencies in the United States, United States federal agency under the United States Department of the Treasury, Department of the Treasury that chartered, supervised, and regulated al ...

. It dramatically changed the savings and loan industry and its federal regulation, encouraging loan origination.

Overview

FIRREA dramatically changed the savings and loan industry and its federal regulation, including deposit insurance. The "Paulson Blueprint" summarized it in the following: # The

(FHLBB) was abolished. # The

Federal Savings and Loan Insurance Corporation The Federal Savings and Loan Insurance Corporation (FSLIC) was an institution that administered deposit insurance for savings and loan institutions in the United States. History Establishment The FSLIC was established by the National Housing Act ...

(FSLIC) was abolished, and all assets and liabilities were assumed by the FSLIC Resolution Fund administered by the

FDIC The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...

and funded by the Financing Corporation (FICO). # The

(OTS), a bureau of the U.S. Treasury Department, was created to charter, regulate, examine, and supervise savings institutions. # The

Federal Housing Finance Board The Federal Housing Finance Board (FHFB) was an independent agency of the United States government established in 1989 in the aftermath of the savings and loan crisis to take over management of the Federal Home Loan Banks (FHLBs or FHLBanks) from ...

(FHFB) was created as an independent agency to take the place of the FHLBB, i.e. to oversee the 12

Federal Home Loan Banks The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to financial institutions to support housing finance and community investment. Overview The FHLBank System was chartered by ...

(also called district banks) that represent the largest collective source of home mortgage and community credit in the United States. # The

Savings Association Insurance Fund The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted dur ...

(SAIF) took the place of 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 Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...

. # The

(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.

Other regulations

In addition, FIRREA gives both

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is an American publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons, Virginia.Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New ...

additional responsibility to support mortgages for low- and moderate-income families (12 U.S.C §1441a–2(b). Authorization for State housing finance agencies and nonprofit entities to purchase mortgage-related assets - Investment requirement). It also created the Bank Insurance Fund (BIF). Both of these funds were to be administered by the

. This section of FIRREA was amended by the

Federal Deposit Insurance Reform Act The Federal Deposit Insurance Reform Act of 2005 (Title II, subtitle B of , with a companion statute, Federal Deposit Insurance Reform Conforming Amendments Act of 2005, ), was an act of the United States Congress on banking regulation. It contain ...

of 2005, which consolidated the two funds. FIRREA allowed

bank holding companies A bank holding company is a Holding company, company that controls one or more banks, but does not necessarily engage in banking itself. The Compound (linguistics), compound bancorp (''banc''/''bank'' + ''corporation, corp

ration Rationing is the controlled distribution (marketing), distribution of scarcity, scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resourc ...

') or banco ...

to acquire thrifts. It established new regulations for

real estate appraisal Real estate appraisal, home appraisal, property valuation or land valuation is the process of assessing the value of real property (usually market value). The appraisal is conducted by a licensed appraiser. Real estate transactions often require ...

s. In addition, the Act established Appraisal Subcommittee (ASC) within the Examination Council of the

Federal Financial Institutions Examination Council The Federal Financial Institutions Examination Council (FFIEC) is a formal U.S. government interagency body composed of five banking regulators that is "empowered to prescribe uniform principles, standards, and report forms to promote uniformity ...

. It also established new

capital Capital and its variations may refer to: Common uses * Capital city, a municipality of primary status ** Capital region, a metropolitan region containing the capital ** List of national capitals * Capital letter, an upper-case letter Econom ...

reserve requirement Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the Bank reserves, commercial bank's reserve, is generally determined ...

s. It increased public oversight of the process. It required the agencies to issue

Community Reinvestment Act The Community Reinvestment Act (CRA, P.L. 95-128, 91 Stat. 1147, title VIII of the Housing and Community Development Act of 1977, ''et seq.'') is a United States federal law designed to encourage commercial banks and savings associations to h ...

(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."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. These rules increased pressure on banks to make mortgage home loans to inner-city and rural areas. Savings and loans were no longer allowed to acquire "junk bonds" (aka

High-yield debt In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit even ...

) and were required to dispose of their holdings of these bonds by 1994. They were also required to mark them to the lower of cost or market value. The amount of "supervisory goodwill" that was allowed to be counted in core capital requirements was phased out through, and then eliminated, by January 1, 1995. (However, the

United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that turn on question ...

in '' United States v. Winstar Corp.'' found that the United States had breached its contract with the thrifts by disallowing the "supervisory goodwill" in the core capital calculations.)

Appraisal standards

Title XI of FIRREA created the Appraisal Subcommittee (ASC) of the

(FFIEC) to oversee and monitor appraisal standards. It does not regulate appraisers themselves, but does so indirectly such that if the ASC finds that a particular state’s appraiser regulation and certification program is inadequate, then under the banking agencies’ regulations all appraisers in that state are no longer eligible to do appraisals for depository institutions. To accomplish this, the ASC monitors the activities of the state regulatory agencies and the Appraisal Foundation, which promulgates the generally accepted appraisal standards and qualification standards for state-certified and licensed appraisers. Through the

Appraisal Standards Board The Appraisal Standards Board (ASB) develops, interprets and amends the Uniform Standards of Professional Appraisal Practice (USPAP). The ASB is composed of seven appraiser An appraiser (from Latin ''appretiare'', "to value") is a person that devel ...

(ASB) and the minimum standards for appraisal licensure through the Appraiser Qualifications Board (AQB), the Appraisal Foundation publishes the

Uniform Standards of Professional Appraisal Practice Uniform Standards of Professional Appraisal Practice (USPAP) can be considered the quality control standards applicable for real property, personal property, intangible assets, and business valuation appraisal analysis and reports in the United Sta ...

Use with respect to the subprime mortgage crisis

The Act, which gives the government broad authority to bring civil claims and has less stringent requirements to establish liability than commercial

fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...

statutes, was used after the

subprime mortgage crisis The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...

to attempt to establish the liability of banks that allegedly misrepresented the quality of loans to the Federal Housing Administration, which, relying on the representations of the banks, insured them and subsequently suffered losses.

References

External links

Financial Institutions Reform, Recovery, and Enforcement Act of 1989
as amended
PDFdetails
in the GPObr>Statute Compilations collection

Financial Institutions Reform, Recovery, and Enforcement Act of 1989
as enacted
details
in the US Statutes at Large
FIRREA Bibliography from the FDIC
* ttps://web.archive.org/web/20060512125854/http://in.us.biz.yahoo.com/f/g/ff.html#bd Information about FIRREA from Yahoo! Financial Glossary {{DEFAULTSORT:Financial Institutions Reform, Recovery And Enforcement Act Of 1989 1989 in American law Federal Deposit Insurance Corporation United States federal banking legislation Savings and loan crisis United States statutes that abrogate Supreme Court decisions