Resolution Funding Corporation (REFCORP)

Resolution Funding Corporation (REFCORP or RefCorp) is a government-sponsored corporation which was created by the United States Congress to fund the Resolution Trust Corporation (RTC). The RTC is the federally-owned asset management company. Its establishment was to bail out savings and loan ( S&L) institutions which failed during the Savings and Loan Crisis of the late 1980s and early 1990s.

REFCORP provided liquidity to these organizations by issuing bonds, and also helped administer some of the struggling S&Ls. The establishment of both REFCORP and RTC were as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

REFCORP, a 501(c)(1) organization, was a crucial mechanism to help Resolution Trust Corporation (RTC) liquidate or prop up savings and loans during the crisis, which began in the late 1970s and lasted through the first half of the '90s.

During this time S&L participation in risky activities such as commercial real estate lending and investing in junk bonds, incurred big financial losses. However, their deposits, insured by the Federal Savings and Loan Insurance Corporation (FSLIC), which itself became insolvent, the U.S. government was forced to leverage massive taxpayer funds to resolve the crisis.

REFCORP issued bonds between 1989 and 1991. Over the course of more than six years, the Resolution Trust Corporation (RTC) liquidated, bailed-out, or otherwise resolved cases of 747 insolvent S&Ls, and thrift institutions. This activity cost taxpayers to the tune of nearly $500 billion.

• In 1997, more than a decade after the end of the S&L crisis, Resolution Funding Corporation (REFCORP ) still had outstanding debt of about $30 billion.
• Since 1999, the FHL banks were required to pay 20-percent of their profits, after payments to the Affordable Housing Program, toward bond repayments.
• By August 2011, the Federal Housing Finance Agency (FHFA) announced the Federal Home Loan Banks (FHL), had fulfilled their statutory requirements to pay the interest due on the REFCORP bonds. The August announcement outlined a new capital plan for the nationwide Federal Home Loan Banks.

This 2011 plan obligated FHL banks to allocate funds, previously applied to interest on the REFCORP bonds, to new restricted retained earnings accounts. The aim is to bolster the banks' retained earnings and capital, which began in September 2011. Under the plan's guidelines, FHL banks will save 20-percent of their net income to the restricted retained earnings accounts, until the accounts equaled 1-percent of the bank's outstanding consolidated obligations.

Through this August 2011 announcement, then Acting Director, Ed DeMarco said, "FHFA strongly supports the Banks' collaboration in developing this Joint Agreement, which enhances their capital and the safety and soundness of the Federal Home Loan Bank System. The approach taken by the banks reflects the longstanding practice and requirements pre-REFCORP of directing at least 20 percent of earnings to building retained earnings," he explained.

"The Banks' cooperative approach to establishing and building restricted retained earnings accounts will enhance the System's safety and soundness and is an appropriate action in view of the Banks' joint and several obligations to pay System debt obligations."