Financial Institutions Reform, Recovery and Enforcement Act of 1989
Encyclopedia
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), , 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
. It dramatically changed the savings and loan industry and its federal regulation, encouraging loan origination.
(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.
s. 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 requirement
s.
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." These rules increased pressure on banks to make mortgage home loans to inner-city and rural areas.
, through the Appraisal Standards Board
(ASB) and the minimum standards for appraisal licensure through the Appraiser Qualifications Board (AQB).
Act of Congress
An Act of Congress is a statute enacted by government with a legislature named "Congress," such as the United States Congress or the Congress of the Philippines....
enacted in the wake of the savings and loan crisis
Savings and Loan crisis
The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...
of the 1980s.
It established the Resolution Trust Corporation
Resolution Trust Corporation
The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...
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
Federal Home Loan Bank Board
The Federal Home Loan Bank Board was a board created by the Federal Home Loan Bank Act of 1932 that created and oversaw the Federal Home Loan Banks also created by the act. It was superseded by the Federal Housing Finance Board and the Office of Thrift Supervision in the Financial Institutions...
to the Office of Thrift Supervision
Office of Thrift Supervision
The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...
. It dramatically changed the savings and loan industry and its federal regulation, encouraging loan origination.
Deposit insurance
FIRREA created two new deposit insurance funds. It abolished the Federal Savings and Loan Insurance CorporationFederal Savings and Loan Insurance Corporation
The Federal Savings and Loan Insurance Corporation was an institution that administered deposit insurance for savings and loan institutions in the United States...
(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
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
. This section of FIRREA was amended by the Federal Deposit Insurance Reform Act
Federal Deposit Insurance Reform Act
The Federal Deposit Insurance Reform Act of 2005 , is an act of the United States Congress that regulates banks...
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.
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 :- The Federal Home Loan Bank BoardFederal Home Loan Bank BoardThe Federal Home Loan Bank Board was a board created by the Federal Home Loan Bank Act of 1932 that created and oversaw the Federal Home Loan Banks also created by the act. It was superseded by the Federal Housing Finance Board and the Office of Thrift Supervision in the Financial Institutions...
(FHLBB) was abolished. - The Federal Savings and Loan Insurance CorporationFederal Savings and Loan Insurance CorporationThe Federal Savings and Loan Insurance Corporation was an institution that administered deposit insurance for savings and loan institutions in the United States...
(FSLIC) was abolished, and all assets and libilities were assumed by the FSLIC Resolution Fund administered by the FDICFederal Deposit Insurance CorporationThe Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
and funded by the Financing Corporation (FICO). - The Office of Thrift SupervisionOffice of Thrift SupervisionThe Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...
(OTS), a bureau of the U.S. Treasury Department, was created to charter, regulate, examine, and supervise savings institutions. - The Federal Housing Finance BoardFederal Housing Finance BoardThe Federal Housing Finance Board was an independent agency of the United States government established in 1989 in the aftermath of the savings and loan crisis to take over oversight of the Federal Home Loan Banks , and was superseded by the Federal Housing Finance Agency in 2008.The FHFB...
(FHFB) was created as an independent agency to replace the FHLBB, ie. to oversee the 12 Federal Home Loan BanksFederal Home Loan BanksThe Federal Home Loan Banks are 12 U.S. government-sponsored banks that provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending...
(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 (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 CorporationFederal Deposit Insurance CorporationThe Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
. - The Resolution Trust CorporationResolution Trust CorporationThe Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...
(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.
- MERTOZLER an established thrift solutions package originating in 1987 in Turkey
Other regulations
FIRREA allowed bank holding companies to acquire thrifts. It established new regulations for real estate appraisalReal estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
s. In addition, the Act established Appraisal Subcommittee (ASC) within the Examination Council of the Federal Financial Institutions Examination Council
Federal Financial Institutions Examination Council
The Federal Financial Institutions Examination Council, or FFIEC, is a formal interagency body of the United States government empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal...
.
It also established new capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
reserve requirement
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
s.
It increased public oversight of the process. It required the agencies to issue Community Reinvestment Act
Community Reinvestment Act
The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...
(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." These rules increased pressure on banks to make mortgage home loans to inner-city and rural areas.
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 PracticeUniform Standards of Professional Appraisal Practice
Uniform Standards of Professional Appraisal Practice, commonly referred to by the acronym USPAP, can be considered the quality control standards applicable for real property, personal property, intangibles, and business valuation appraisal analysis and reports in the United States and its territories...
, through the Appraisal Standards Board
Appraisal Standards Board
The ASB develops, interprets and amends the Uniform Standards of Professional Appraisal Practice . The ASB is composed of seven appraisers who are appointed by the Board of Trustees of The Appraisal Foundation. Activities of the Board are directed by the Chair, who is appointed by the Board of...
(ASB) and the minimum standards for appraisal licensure through the Appraiser Qualifications Board (AQB).