Financial Audit: Resolution Trust Corporation's 1995 and 1994 Financial
Statements (Letter Report, 07/02/96, GAO/AIMD-96-123).

GAO audited the Resolution Trust Corporation's (RTC) financial
statements for 1995 and 1994 and the related statements of revenues,
expenses, accumulated deficit, and cash flows for those years. GAO found
that RTC's financial statements were reliable in all material respects.
Although internal controls could be improved, RTC management fairly
stated that its internal controls effectively safeguarded assets from
material loss, ensured material compliance with laws and regulations,
and ensured that no material misstatements appeared in the financial
statements. GAO found no reportable noncompliance with laws and
regulations. Because RTC's mission of resolving hundreds of insolvent
thrifts is coming to an end, GAO also presents a historical perspective
of the savings and loan crisis, including its financial implications.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-96-123
     TITLE:  Financial Audit: Resolution Trust Corporation's 1995 and 
             1994 Financial Statements
      DATE:  07/02/96
   SUBJECT:  Financial statement audits
             Federal corporations
             Internal controls
             Corporate audits
             Auditing standards
             Accounting procedures
             Savings and loan associations
             Bank failures
             Economic analysis
             Contract administration
IDENTIFIER:  SAIF
             Savings Association Insurance Fund
             FSLIC Resolution Fund
             
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Cover
================================================================ COVER


Report to the Congress

July 1996

FINANCIAL AUDIT - RESOLUTION TRUST
CORPORATION'S 1995 AND 1994
FINANCIAL STATEMENTS

GAO/AIMD-96-123

RTC's Financial Statements

(917335)


Abbreviations
=============================================================== ABBREV

  FDIC - Federal Deposit Insurance Corporation
  FICO - Financing Corporation
  FIRREA - Financial Institutions Reform, Recovery, and Enforcement
     Act of 1989
  FMFIA - Federal Managers' Financial Integrity Act of 1982
  FRF - FSLIC Resolution Fund
  FSLIC - Federal Savings and Loan Insurance Corporation
  REFCORP - Resolution Funding Corporation
  RTC - Resolution Trust Corporation
  SAIF - Savings Association Insurance Fund

Letter
=============================================================== LETTER


B-262036

July 2, 1996

To the President of the Senate and the
Speaker of the House of Representatives

This report presents our opinions on the financial statements of the
Resolution Trust Corporation (RTC) for the years ended December 31,
1995 and 1994.  This report also presents our opinion on RTC
management's assertions regarding the effectiveness of its system of
internal controls on December 31, 1995, and our evaluation of
compliance with laws and regulations.  We conducted our audits
pursuant to the provisions of section 21A(k)(1) of the Federal Home
Loan Bank Act (12 U.S.C.  1441a(k)(1)) and in accordance with
generally accepted government auditing standards. 

The report also discusses (1) an internal control weakness we
identified, (2) the savings and loan crisis and the creation of RTC,
(3) the completion of RTC's mission, (4) RTC's costs and funding, (5)
RTC's contracting, (6) the cost of resolving the savings and loan
crisis, and (7) remaining fiscal implications of the crisis. 

We are sending copies of this report to the Chairman and members of
the Thrift Depositor Protection Oversight Board; the Chairman of the
Board of Directors of the Federal Deposit Insurance Corporation; the
Director of the Office of Management and Budget; the Chairmen and
Ranking Minority Members of the Senate Committee on Governmental
Affairs, the House Committee on Government Reform and Oversight, the
Senate Committee on Banking, Housing and Urban Affairs, and the House
Committee on Banking and Financial Services; and other interested
parties. 

This report was prepared under the direction of Robert W.  Gramling,
Director, Corporate Audits and Standards, who may be reached at (202)
512-9406 if you or your staff have any questions.  Major contributors
to this report are listed in appendix IV. 

Charles A.  Bowsher
Comptroller General
of the United States


Letter
=============================================================== LETTER


B-262036

To the Thrift Depositor Protection
Oversight Board

We have audited the Resolution Trust Corporation's (RTC) statements
of financial position as of December 31, 1995 and 1994, and the
related statements of revenues, expenses, accumulated deficit, and
cash flows for the years then ended as reported by the Federal
Deposit Insurance Corporation (FDIC).\1 We found: 

  -- RTC's financial statements referred to above were reliable in
     all material respects. 

  -- Although internal controls should be improved, RTC management
     fairly stated that internal controls in place on December 31,
     1995, were effective in safeguarding assets from material loss,
     assuring material compliance with relevant laws and regulations,
     and assuring that there were no material misstatements in the
     financial statements. 

  -- No reportable noncompliance with laws and regulations we tested. 

The following section discusses each of the above conclusions in more
detail.  In addition, with the termination of RTC on December 31,
1995, an important phase of the savings and loan crisis has ended. 
Accordingly, the report also presents an historical perspective on
the savings and loan crisis and RTC, the costs of the crisis, and
remaining fiscal implications of the crisis. 

Appendix I presents RTC's financial statements.  Appendix II presents
RTC management's report on internal controls.  FDIC's written
comments on a draft of this report are included in appendix III. 
Major contributors to this report are included in appendix IV. 


--------------------
\1 RTC's final day of operation was December 31, 1995, and all of
RTC's assets and liabilities were transferred to the Federal Deposit
Insurance Corporation's FSLIC Resolution Fund.  FDIC also assumed
responsibility for RTC's financial records and systems, and for
preparing RTC's final financial statements. 


   OPINION ON FINANCIAL STATEMENTS
------------------------------------------------------------ Letter :1

The financial statements including the accompanying notes present
fairly, in all material respects, in accordance with generally
accepted accounting principles, the Resolution Trust Corporation's

  -- assets, liabilities, and equity;

  -- revenues, expenses, and accumulated deficit; and

  -- cash flows. 

However, misstatements may nevertheless occur in other RTC-related
financial information as a result of the internal control weakness
described below. 


   OPINION ON RTC MANAGEMENT'S
   ASSERTION ABOUT THE
   EFFECTIVENESS OF INTERNAL
   CONTROLS
------------------------------------------------------------ Letter :2

We evaluated RTC management's assertion about the effectiveness of
its internal controls designed to

  -- safeguard assets against loss from unauthorized acquisition,
     use, or disposition;

  -- assure the execution of transactions in accordance with
     management's authority and with laws and regulations that have a
     direct and material effect on the financial statements; and

  -- properly record, process, and summarize transactions to permit
     the preparation of reliable financial statements and to maintain
     accountability for assets. 

RTC management fairly stated that those controls in place on December
31, 1995, provided reasonable assurance that losses, noncompliance,
or misstatements material in relation to the financial statements
would be prevented or detected on a timely basis.  RTC management
made this assertion, which is included in appendix II, based upon
criteria established under the Federal Managers' Financial Integrity
Act of 1982 (FMFIA).  RTC management, in making its assertion,
recognized the need to improve internal controls.  Our work also
identified the need to improve internal controls, as described in the
following section.  The weakness in internal controls, although not
considered a material weakness, represents a significant deficiency
in the design or operation of internal controls which could have
adversely affected RTC's ability to fully meet the internal control
objectives listed above.\2


--------------------
\2 Reportable conditions involve matters coming to our attention
relating to significant deficiencies in the design or operation of
internal controls that, in the auditor's judgment, could adversely
affect an entity's ability to (1) safeguard assets against loss from
unauthorized acquisition, use, or disposition, (2) ensure the
execution of transactions in accordance with management's authority
and in accordance with laws and regulations, or (3) properly record,
process, and summarize transactions to permit the preparation of
financial statements and to maintain accountability for assets.  A
material weakness is a reportable condition in which the design or
operation of the internal controls does not reduce to a relatively
low level the risk that losses, noncompliance, or misstatements in
amounts that would be material in relation to the financial
statements may occur and not be detected within a timely period by
employees in the normal course of their assigned duties.  Reportable
conditions which are not considered to be material nevertheless
represent significant deficiencies in the design or operation of
internal controls and need to be corrected by management. 


   REPORTABLE CONDITION
------------------------------------------------------------ Letter :3

RTC acted during 1995 to resolve the reportable condition related to
the weaknesses in general controls over some computerized information
systems\3 identified in our audit of its 1994 financial statements. 
However, as reported by RTC, many of those corrective actions were
not completed until late in 1995.  In addition, our audit of RTC's
1995 financial statements identified additional weaknesses related to
general controls over its computerized systems such that this
reportable condition continued to exist. 

Because RTC relied on its computerized information systems
extensively, both in its daily operations and in processing and
reporting financial information, the effectiveness of general
controls is a significant factor in ensuring the integrity and
reliability of financial data.  Because corrective actions for many
of the general control weaknesses identified in our 1995 and 1994
audits were not implemented until late 1995 and early 1996, our audit
found that general controls still did not provide adequate assurance
that some of RTC data files and computer programs were fully
protected from unauthorized access and modification. 

In response to the weaknesses we identified, RTC and FDIC developed
action plans to address the weaknesses.  Prior to the completion of
our audit work on June 7, 1996, FDIC reported that most of the
corrective actions had been implemented, with those remaining
scheduled for implementation by September 30, 1996.  We plan to
evaluate the effectiveness of the corrective actions as part of our
1996 audit of FDIC. 

During 1995, RTC performed accounting and control procedures, such as
reconciliations and manual comparisons, which would have detected
material data integrity problems resulting from inadequate general
controls.  Without these procedures, weaknesses in the general
controls would raise significant concern over the integrity of the
information obtained from the affected systems. 

Other less significant matters involving the internal control
structure and its operation noted during our audit will be
communicated separately to FDIC's management, which assumed
responsibility for RTC's remaining assets and liabilities since RTC's
termination on December 31, 1995. 


--------------------
\3 General controls are policies and procedures that apply to an
entity's overall effectiveness and security of operations which
create the environment in which application controls and certain user
controls operate.  General controls include the organizational
structure, operating procedures, software security features, system
development and change control, and physical safeguards designed to
ensure that only authorized changes are made to computer programs,
that access to data is appropriately restricted, that back-up and
recovery plans are adequate to ensure the continuity of essential
operations, and that physical protection of facilities is provided. 


   COMPLIANCE WITH LAWS AND
   REGULATIONS
------------------------------------------------------------ Letter :4

Our tests for compliance with selected provisions of laws and
regulations disclosed no instances of noncompliance that would be
reportable under generally accepted government auditing standards. 
However, the objective of our audit was not to provide an opinion on
the overall compliance with laws and regulations.  Accordingly, we do
not express such an opinion. 


   THE SAVINGS AND LOAN CRISIS: 
   HISTORICAL PERSPECTIVE AND
   FISCAL IMPLICATIONS
------------------------------------------------------------ Letter :5

With the termination of RTC's operations on December 31, 1995, a
significant phase of the savings and loan crisis has ended.  The
following sections present an historical perspective on the savings
and loan crisis and RTC's role in resolving the crisis. 
Specifically, the information describes (1) background on the savings
and loan crisis and the creation of RTC, (2) the completion of RTC's
mission, (3) RTC's estimated costs and funding, (4) RTC's controls
over contracting, (5) the cost of resolving the savings and loan
crisis, and (6) remaining fiscal implications of the crisis. 


      THE SAVINGS AND LOAN CRISIS
      AND RTC
---------------------------------------------------------- Letter :5.1

During the 1980s, the savings and loan industry experienced severe
financial losses because extremely high interest rates caused
institutions to pay high rates on deposits and other funds while
earning low yields on their long-term loan portfolios.  During this
period, regulators reduced capital standards and allowed the use of
alternative accounting procedures to increase reported capital
levels.  While these conditions were occurring, institutions were
allowed to diversify their investments into potentially more
profitable, but risky, activities.  The profitability of many of
these activities depended heavily on continued inflation in real
estate values to make them economically viable.  In many cases,
diversification was accompanied by inadequate internal controls and
noncompliance with laws and regulations, thus further increasing the
risk of these activities. 

As a result of these factors, many institutions experienced
substantial losses on their loans and investments, a condition that
was made worse by an economic downturn.  Faced with increasing
losses, the industry's insurance fund, the Federal Savings and Loan
Insurance Corporation (FSLIC), began incurring losses in 1984.  By
the end of 1987, 505 savings and loan institutions were insolvent. 
The industry's deteriorating financial condition overwhelmed the
insurance fund which only 7 years earlier reported insurance reserves
of $6.5 billion.  In 1987, the Congress responded by creating the
Financing Corporation (FICO) to provide financing to the FSLIC
through the issuance of bonds.  Through August 8, 1989, FICO provided
$7.5 billion in financing to the FSLIC; however, the insurance fund
required far greater funding to deal with the industry's problems. 

In response to the worsening savings and loan crisis, the Congress
enacted the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) on August 9, 1989.  FIRREA abolished FSLIC and
transferred its assets, liabilities, and operations to the
newly-created FSLIC Resolution Fund (FRF) to be administered by the
FDIC.\4 In addition, FIRREA created a new insurance fund, the Savings
Association Insurance Fund (SAIF). 

FIRREA also created the RTC to resolve all troubled institutions
placed into conservatorship or receivership from January 1, 1989,
through June 30, 1995.\5 RTC's overall responsibilities included
managing and disposing of receivership assets and recovering taxpayer
funds.  In 1993, the Resolution Trust Corporation Completion Act
required RTC to cease its operations on or before December 31, 1995,
and transfer any remaining assets and liabilities to the FSLIC
Resolution Fund. 

FIRREA provided RTC with a total of $50 billion in funding to resolve
failed institutions and pay related expenses.  FIRREA also
established the Resolution Funding Corporation (REFCORP) to provide
RTC with $30 billion of the $50 billion in funding through the
issuance of bonds.  However, funding provided to RTC by FIRREA was
not sufficient and the Congress enacted subsequent legislation
resulting in a total of $105 billion being made available to RTC to
cover losses associated with resolutions.\6


--------------------
\4 The funds needed to settle FSLIC's remaining liabilities were
provided from a variety of sources, including appropriations from the
general fund of the Treasury (hereafter referred to as
appropriations), industry assessments, and recoveries from asset
sales. 

\5 FIRREA created RTC to manage and resolve all troubled institutions
that were previously insured by FSLIC and for which a conservator or
receiver was appointed during the period January 1, 1989, through
August 8, 1992.  This period was extended to September 30, 1993, by
the Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991.  In December 1993, the period was again
extended to a date not earlier than January 1, 1995, nor later than
July 1, 1995 by the Resolution Trust Corporation Completion Act.  The
final date of June 30, 1995, was selected by the Chairperson of the
Thrift Depositor Protection Oversight Board. 

\6 The Resolution Trust Corporation Funding Act of 1991 provided an
additional $30 billion.  The Resolution Trust Corporation
Refinancing, Restructuring, and Improvement Act of 1991 provided $25
billion in December 1991, which was only available for obligation
until April 1, 1992.  In December 1993, the RTC Completion Act
removed the April 1, 1992, deadline, thus making the balance of the
$25 billion available to RTC for resolution activities. 


      RTC'S MISSION SUBSTANTIALLY
      COMPLETED
---------------------------------------------------------- Letter :5.2

RTC closed 747 institutions with $402 billion in book value of assets
when they entered the conservatorship phase.  During conservatorship,
assets were reduced by $162 billion to $240 billion through sales,
collections, and other adjustments.  In the receivership phase,
assets were further reduced by $232 billion.  Thus, at December 31,
1995, RTC assets in liquidation totaled approximately $8 billion. 
The remaining assets were transferred to the FSLIC Resolution Fund
effective January 1, 1996. 

RTC also fulfilled the government's pledge to insured depositors by
protecting 25 million depositor accounts.  Of the $277 billion in
liabilities at resolution, approximately $221 billion represented
liabilities to depositors.  At resolution, RTC generally transferred
the deposit liabilities, along with the required funding, to one or
more healthy acquiring institutions.  During the receivership phase,
RTC used asset recoveries to pay the remaining creditors, and to
recover a portion of the amount it advanced to cover deposit
liabilities. 

Another important part of RTC's activities included ensuring that as
many thrift violators as possible were brought to justice and that
funds were recovered on behalf of taxpayers.  RTC investigated,
initiated civil litigation, and made criminal referrals in cases
involving former officers, directors, professionals, and others who
played a role in the demise of failed institutions.  Approximately
$2.4 billion was recovered from professional liability claims, and
$26 million was collected in criminal restitution. 


      RTC'S ESTIMATED COSTS AND
      FUNDING
---------------------------------------------------------- Letter :5.3

As of December 31, 1995, RTC estimated that the total cost for
resolving the 747 failed institutions was $87.9 billion.  These costs
represent the difference between recoveries from receivership assets
and the amounts advanced to pay depositors and other creditors of
failed institutions plus the expenses associated with resolving
institutions.  As shown in table 1, $81.3 billion, or 92 percent, of
RTC's total estimated costs have already been realized through
December 31, 1995, and therefore, are known.  The estimated $6.6
billion remaining at December 31, 1995, represents expected future
losses on remaining receivership and corporate assets.  The ultimate
recoveries on those assets are subject to uncertainties. 



                                Table 1
                
                RTC's Realized and Estimated Losses and
                  Expenses, Through December 31, 1995

                         (Dollars in billions)

--------------------------------------------------------------  ------
Realized losses and expenses through December 31, 1995
----------------------------------------------------------------------
Losses from receiverships and terminations                       $72.2
Interest expense on FFB borrowing                                 10.2
Administrative expenses not charged to receiverships               0.4
Offsetting revenue and interest income                           (1.5)
======================================================================
Subtotal: Realized losses and expenses through December 31,      $81.3
 1995
Estimated future losses and expenses                               6.6
======================================================================
Total realized and estimated future losses and expenses          $87.9
----------------------------------------------------------------------
Losses of $72.2 billion were realized while institutions were in
receivership and after termination.  Receivership losses were
realized when amounts realized from asset sales were not sufficient
to repay the amounts advanced by RTC.  For those institutions that
were terminated, RTC realized further losses if it later sold assets
for less than the price it paid when it purchased the assets from the
receiverships at termination. 

RTC borrowed working capital funds from the Federal Financing Bank
(FFB) to provide funding for insured deposits and to replace
high-cost borrowing of the failed institutions.  In general, these
funds were expected to be repaid with the proceeds from receivership
asset sales, with any shortfall being covered by loss funding. 
Through December 31, 1995, RTC incurred $10.2 billion in interest
expense on amounts borrowed from the FFB for working capital. 

RTC's administrative expenses represent overhead expenses not
otherwise charged or billed back to receiverships.  The portion of
expenses billed back to receiverships is not included in RTC's
administrative expense total, but is included in the loss from
receiverships.  In addition, receiverships pay many other expenses
directly which are also included in the losses from receiverships. 
The estimated $6.6 billion of future costs include expected losses
from receiverships and terminations as well as estimated future
administrative expenses. 

In total, the Congress provided funding to cover $105 billion of
losses and expenses associated with RTC's resolution of failed
institutions.  As shown in table 2, after reducing the $105 billion
available for RTC's estimated losses of $87.9 billion, an estimated
$17.1 billion in unused loss funds will remain. 



                                Table 2
                
                   Estimated Unused Loss Funds After
                     Completion of RTC's Resolution
                               Activities

                         (Dollars in billions)

--------------------------------------------------------------  ------
Total loss funds provided                                       $105.0
Less: Total estimated loss funds needed                         (87.9)
======================================================================
Estimated unused loss funds                                      $17.1
----------------------------------------------------------------------
The final amount of unused loss funds will not be known with
certainty until all remaining assets and liabilities are liquidated. 
Loss funds not used for RTC resolution activity are available until
December 31, 1997, for losses incurred by the SAIF, if the conditions
set forth in the Resolution Trust Corporation Completion Act are
met.\7 Also, according to the act, unused loss funds will be returned
to the general fund of the Treasury. 


--------------------
\7 The RTC Completion Act makes available to SAIF, during the 2-year
period beginning on the date of RTC's termination, any of the $18.3
billion in appropriated funds made available by the RTC Completion
Act and not needed by RTC.  However, prior to receiving such funds,
FDIC must first certify, among other things, that SAIF cannot fund
insurance losses through industry premium assessments or Treasury
borrowings without adversely affecting the health of its member
institutions and causing the government to incur greater losses. 


      CONTROLS OVER CONTRACTING
      MAY HAVE AFFECTED
      RECEIVERSHIP RECOVERIES
---------------------------------------------------------- Letter :5.4

RTC used thousands of private contractors to manage and dispose of
assets from failed thrifts, including activities such as collecting
income and paying expenses.  The estimated recoveries from
receiverships included in RTC's financial statements include the
receipts collected and disbursements made by contractors that perform
services for receiverships.  As we previously reported,\8 weak
operating controls over contract issuance and contractor oversight
may have affected the amounts RTC ultimately recovered from its
receiverships.  While we assess, as part of our financial statement
audit, internal accounting controls over receivership receipts and
disbursements, RTC's operating controls over contract issuance and
contractor oversight are not part of the scope of our audit.  These
operating controls were reviewed by RTC's Inspector General and
Office of Contract Oversight and Surveillance, as well as by GAO in
other reviews.\9

RTC took various actions to improve the process of contract issuance
and contractor oversight, and had placed increased emphasis on the
process of closing out\10 contracts to ensure that contractors have
fulfilled all contractual responsibilities.  However, results of
audits conducted by RTC's Inspector General and Office of Contract
Oversight and Surveillance demonstrated that despite RTC's actions to
correct contracting problems, the effects of early neglect of
contracting operations remained.  These audits identified internal
control problems with RTC's auction contracts and with RTC's general
oversight of contractors.  These audits also identified significant
performance problems with contracts that were issued before many
contracting reforms and improvements were implemented by RTC. 

During 1995, RTC closed many contracts, pursued contract audit
resolution, identified contracts necessary to accomplish the
remaining workload after RTC's termination, and processed contract
modifications to transfer them to FDIC.  However, estimated future
recoveries from RTC receiverships remain vulnerable to the risks
associated with early weaknesses in contractor oversight and
performance.  As a result of these operating weaknesses, RTC could
not be sure that it has recovered all it should have recovered from
its receiverships. 


--------------------
\8 Financial Audit:  Resolution Trust Corporation's 1994 and 1993
Financial Statements (GAO/AIMD-95-157, June 22, 1995). 

\9 High-Risk Series:  An Overview (GAO/HR-95-1, February 1995);
High-Risk Series:  Quick Reference Guide (GAO/HR-95-2, February
1995); and Resolution Trust Corporation:  Efforts Under Way to
Address Management Weaknesses (GAO/GGD-95-109, May 12, 1995). 

\10 RTC's contracting manual states that a contract closeout
includes, among other things, a determination by the contracting
officer that (1) all deliverables, including reports, have been
received by RTC and accepted, (2) final payment has been made, (3)
all collections of funds due to RTC have been completed, (4) all
financial documents are in the file, (5) all RTC property has been
returned and accounted for, and (6) all RTC files have been returned. 


      RTC'S COSTS REPRESENT ONLY A
      PORTION OF THE TOTAL COST OF
      THE SAVINGS AND LOAN CRISIS
---------------------------------------------------------- Letter :5.5

RTC's costs for its responsibilities in resolving the savings and
loan crisis represent only a portion of the total costs of the
savings and loan crisis.  The cost associated with FSLIC assistance
and resolutions represents another sizable direct cost.  In addition,
the total cost includes indirect costs related to tax benefits
granted in FSLIC assistance agreements. 



                                Table 3
                
                 Estimated Direct and Indirect Costs of
                 Resolving the Savings and Loan Crisis
                      and Related Funding Sources

                         (Dollars in billions)


                                                                Privat
                                                                     e
                                                        Taxpay  source
                                                 Total     ers       s
----------------------------------------------  ------  ------  ------
Direct costs
----------------------------------------------------------------------
Resolution Trust Corporation                    $ 87.9  $ 81.9   $ 6.0
FSLIC costs                                       64.7    42.7    22.0
Supervisory goodwill claims                        ___     ___     ___
======================================================================
Total direct costs                              $152.6  $124.6   $28.0

Indirect costs
----------------------------------------------------------------------
Tax benefits under FSLIC assistance agreements     7.5     7.5     0.0
======================================================================
Total indirect costs                             $ 7.5   $ 7.5   $ 0.0
======================================================================
Total estimated direct and indirect costs       $160.1  $132.1   $28.0
----------------------------------------------------------------------
Note:  Excluded from this table are the interest expenses associated
with financing the direct costs of the crisis.  See tables 4 and 5,
and associated discussion for further information on interest
expense. 

Of the $160.1 billion in total direct and indirect costs,
approximately $132.1 billion, or 83 percent was provided from
taxpayer funding sources.  The remaining $28.0 billion, or 17 percent
was provided from industry assessments and other private sources. 
(See Figure 1.)

   Figure 1:  Direct and Indirect
   Costs:  Taxpayer Versus Private
   Sources of Funding

   (See figure in printed
   edition.)

Total direct and indirect costs:  $160.1 billion


      DIRECT COSTS
---------------------------------------------------------- Letter :5.6

As shown in table 3, the direct costs associated with resolving the
savings and loans crisis include the cost of RTC resolutions, FSLIC
activity, and supervisory goodwill claims.  All of the funding for
the estimated $152.6 billion in estimated costs related to FSLIC and
RTC has been provided as of December 31, 1995.  However, the cost of
the claims is currently uncertain. 


         RESOLUTION TRUST
         CORPORATION
-------------------------------------------------------- Letter :5.6.1

RTC resolved 747 failed institutions through June 30, 1995, when its
authority to close failed thrifts expired.  As of December 31, 1995,
the total estimated losses associated with RTC's resolved
institutions is $87.9 billion.  Taxpayer funding for RTC's direct
costs is estimated to be $81.9 billion, which is made up of $56.6
billion in appropriations and $25.3 billion related to the
government's responsibility attributable to the REFCORP
transaction.\11 The private sources of funding for RTC activity
totaled $6.0 billion, consisting of $1.2 billion contributed to RTC
from the Federal Home Loan Banks, and $4.8 billion from SAIF and the
Federal Home Loan Banks to support the REFCORP transaction. 


--------------------
\11 The REFCORP financing transaction is a hybrid transaction,
supported by both taxpayer and private industry funding.  REFCORP was
established with the sole purpose of borrowing funds to finance
savings and loan resolutions.  A principal redemption fund was
established using funds contributed by the Federal Home Loan Banks
and SAIF.  Annual interest expense on the REFCORP bonds is being paid
mainly through appropriations, along with annual contributions from
the Federal Home Loan Banks.  REFCORP provided funding to RTC for
resolution losses by issuing $30.0 billion of noncallable, 30- and
40-year bonds to the public.  To calculate the taxpayer and private
sources of funding related to the REFCORP transaction, we used the
present value of the contributions made from taxpayer and private
sources for both principal and interest payments. 


         FSLIC COSTS
-------------------------------------------------------- Letter :5.6.2

As of December 31, 1995, the total estimated costs associated with
FSLIC activity was $64.7 billion.  The estimated cost includes
expenses and liabilities arising from FSLIC assistance provided to
acquirers of failed or failing savings and loan institutions and
FSLIC resolution activity since January 1, 1986.\12 Taxpayer funding
for FSLIC's costs consists of appropriations used by the FSLIC
Resolution Fund and totaled $42.7 billion.  The private sources of
funding for the FSLIC costs include $13.8 billion from FSLIC capital
and industry assessments and $8.2 billion provided by FICO.\13


--------------------
\12 Calculation of costs begins in 1986 because FSLIC equity was
depleted from a positive balance of $4.6 billion on January 1, 1986,
to a negative balance of $6.3 billion at December 31, 1986. 

\13 FICO was established with the sole purpose of borrowing funds to
finance FSLIC's costs.  A principal redemption fund was established
using funds contributed by the industry.  The annual interest expense
on these bonds is also being paid by the industry through insurance
premium assessments.  FICO provided funding for FSLIC-related costs
by issuing $8.2 billion of noncallable, 30-year bonds to the public. 
FICO provided $7.5 billion to FSLIC and $0.7 billion to the FSLIC
Resolution Fund. 


         SUPERVISORY GOODWILL
         CLAIMS
-------------------------------------------------------- Letter :5.6.3

An additional cost of the savings and loan crisis results from the
federal government's legal exposure related to supervisory goodwill
and other forbearances from regulatory capital requirements granted
to the acquirers of troubled savings and loan institutions in the
1980s.  As of December 31, 1995, there were approximately 120 pending
lawsuits which stem from legislation that resulted in the elimination
of supervisory goodwill and other forbearances from regulatory
capital.  These lawsuits assert various legal claims including breach
of contract or an uncompensated taking of property resulting from the
FIRREA provisions regarding minimum capital requirements for thrifts
and limitations as to the use of supervisory goodwill to meet minimum
capital requirements.  One case has resulted in a final judgment of
$6 million against FDIC, which was paid by FRF. 

On July 1, 1996, the United States Supreme Court concluded that the
government is liable for damages in three other cases in which the
changes in regulatory treament required by FIRREA led the government
to not honor its contractual obligations.  However, because the lower
courts had not determined the appropriate measure or amount of
damages, the Supreme Court returned the cases to the Court of Federal
Claims for further proceedings.  Until the amounts of damages are
determined by the court, the amount of additional cost from these
three cases is uncertain.  Further, with respect to the other pending
cases, the outcome of each case and the amount of any possible
damages will depend on the facts and circumstances, including the
wording of agreements between thrift regulators and acquirers of
troubled savings and loan institutions.  Estimates of possible
damages suggest that the additional costs associated with these
claims may be in the billions.  The Congressional Budget Office's
December 1995 update of its baseline budget projections increased its
projection of future federal outlays for fiscal years 1997 through
2002 by $9 billion for possible payments of such claims. 


      INDIRECT COSTS
---------------------------------------------------------- Letter :5.7

As shown in table 3, the estimated cost of special tax benefits
related to FSLIC assistance agreements represents an indirect cost of
the savings and loan crisis.  The estimated total cost for these tax
benefits is $7.5 billion, which will be funded using taxpayer
sources. 

Acquiring institutions received various tax benefits associated with
FSLIC assistance agreements.  For instance, for tax purposes,
assistance paid to an acquiring institution was considered
nontaxable.  In addition, in some cases, acquiring institutions could
carry over certain losses and tax attributes of the acquired troubled
institutions to reduce their own tax liability.  The effect of these
special tax benefits was to reduce the amount of FSLIC assistance
payments required by an acquiring institution for a given transaction
because of the value of tax benefits associated with the transaction. 
Thus, total assistance received by an acquiring institution consisted
of both FSLIC payments and the value of these tax benefits. 

Because these tax benefits represented a reduction in general
Treasury receipts rather than direct costs to FSLIC, we are
presenting tax benefits as indirect costs associated with FSLIC's
assistance transactions.  Of the $7.5 billion in estimated tax
benefits, $3.1 billion has been realized through December 31, 1995. 
The remaining $4.4 billion represents an estimate of the future tax
benefits that could be realized by acquiring institutions in the
future.  However, the amount of future tax benefits depends greatly
upon the future actions and profitability of the acquirers.  For
example, reduced or enhanced earnings, institutional acquisitions,
and changes in corporate control would all affect acquirers' taxable
income or the amount of tax benefits allowed to offset such taxable
income in the future.  The current estimate of future tax benefits is
based on assumptions which are currently deemed most likely to occur
in the future.  However, if conditions change, the amount of future
estimated tax benefits realized could be substantially higher or
lower than the estimated $4.4 billion. 


      REMAINING FISCAL
      IMPLICATIONS OF THE SAVINGS
      AND LOAN CRISIS
---------------------------------------------------------- Letter :5.8

Although most of the direct and indirect costs of the savings and
loan crisis had been funded or provided for through December 31,
1995, significant fiscal implications remain as a result of the
crisis.  Substantial funds were borrowed through bonds specifically
designed to provide funding for a portion of the direct costs.  Both
taxpayers and the industry are paying financing costs on those bonds. 
In addition, a significant portion of direct costs were paid from
appropriations at a time when the federal government was operating
with a sizable budget deficit.  Therefore, it is arguable that
additional borrowing was incurred.  In view of these circumstances,
we are presenting information on the known and estimated interest
expense associated with financing the crisis because the future
stream of payments associated with interest will have continuing
fiscal implications for taxpayers and the savings and loan
industry.\14 An additional fiscal implication is that SAIF is
currently undercapitalized and the savings and loan industry
continues to pay high insurance premiums to build the fund. 


--------------------
\14 An economic analysis of the costs of resolving the savings and
loan crisis would present the amounts in present value terms.  In
present value terms, the amount borrowed is equal to the sum of
interest costs plus debt repayment.  While it is relevant to show
interest payments to illustrate the remaining implications for the
federal budget and the industry, adding the amount borrowed to the
sum of interest payments would overstate the true economic cost of
resolving the crisis. 


         FICO AND REFCORP BONDS
-------------------------------------------------------- Letter :5.8.1

In 1987, the Congress established FICO, which had the sole purpose of
borrowing funds to provide financing to FSLIC.  FICO provided funding
for FSLIC-related costs by issuing $8.2 billion of noncallable,
30-year bonds to the public.  In 1989, the Congress established
REFCORP to borrow funds and provide funding to RTC.  REFCORP provided
funding to the RTC for resolution losses by issuing $30.0 billion of
noncallable, 30- and 40-year bonds to the public.  The annual
interest expense on the $38.2 billion of bonds issued by FICO and
REFCORP has and will continue to have a significant impact on
taxpayers and the savings and loan industry.  The annual FICO bond
interest is funded from the industry's insurance premiums and
represents an increasing burden on the savings and loan industry.  In
addition, the government's portion of annual interest expense on the
REFCORP bonds will continue to require the use of increasingly scarce
budgetary resources. 

Annual interest on the FICO bonds is $793 million and is currently
being paid from industry assessments and interest earnings on FICO's
cash balances.  The annual interest obligation on the FICO bonds will
continue through the maturity of the bonds in the years 2017 through
2019.  The total nominal amount of interest expense over the life of
the FICO bonds will be $23.8 billion. 

Annual interest expense on the REFCORP bonds is $2.6 billion.  The
Federal Home Loan Banks contribute $300 million annually to the
payment of REFCORP interest expense, and the remaining $2.3 billion
of annual interest expense is paid through appropriations.  Annual
interest expense will continue through the maturity of the REFCORP
bonds in the years 2019, 2020, 2021, and 2030.  The total nominal
amount of interest expense over the life of the REFCORP bonds will be
$88 billion. 


         ESTIMATED TREASURY
         INTEREST EXPENSE
         ASSOCIATED WITH THE
         CRISIS
-------------------------------------------------------- Letter :5.8.2

The largest source of funding to pay the direct costs of the savings
and loan crisis was provided by taxpayers as a result of legislation
enacted to specifically deal with the crisis.  This legislation was
enacted during a period in which the federal government was
financing--via deficit spending--a sizable portion of its regular,
ongoing program activities and operations.  Under these
circumstances, it is arguable that substantial, incremental Treasury
borrowing occurred in order to finance the taxpayer portion of the
crisis.\15

To arrive at an amount for estimated future interest associated with
appropriations, we made various simplifying assumptions.  For
purposes of estimating Treasury interest expense associated with
resolving the savings and loan crisis, we assumed that the entire
amount of appropriations used to pay direct costs was borrowed. 
Various other simplifying assumptions were made regarding interest
rates and the financing period.\16 We assumed that the $99.3
billion\17 in appropriations for the FSLIC Resolution Fund and the
RTC would be financed for 30 years at 7 percent interest,\18 with no
future refinancing.  Under these assumptions, approximately $209
billion in estimated interest payments would be needed over 30 years
to cover the interest expense related to appropriations used to cover
the direct costs of the crisis. 

Table 4 presents the known and estimated interest expense components
associated with the financing mechanisms used to provide funds for
the direct costs of the savings and loan crisis. 



                                Table 4
                
                  Known and Estimated Interest Expense
                 Related to the Savings and Loan Crisis

                         (Dollars in billions)


                                                                Privat
                                                                     e
                                                        Taxpay  Source
                                                 Total     ers       s
----------------------------------------------  ------  ------  ------
Known interest expense
----------------------------------------------------------------------
Interest expense on FICO bonds                  $ 23.8   $ 0.0   $23.8
Interest expense on REFCORP bonds                 88.0    76.2    11.8
======================================================================
Total known interest expense on bonds           $111.8   $76.2   $35.6

Estimated interest expense
----------------------------------------------------------------------
Estimated interest expense on appropriations     209.0   209.0     0.0
======================================================================
Total estimated interest expense on             $209.0  $209.0   $ 0.0
 appropriations
----------------------------------------------------------------------

--------------------
\15 A budgetary measure of costs does not attribute general Treasury
interest to programs because general federal receipts and borrowings
are not tied to specific programs.  From the perspective of the
budget as a whole, the general funding sources, whether borrowing or
revenue, are fungible. 

\16 This analysis rests on assumptions about inherently uncertain
long-term fiscal and market behavior.  Different assumptions could be
made regarding interest rates, the mix of short-term versus long-term
financing, the financing period and the portion financed with general
receipts and borrowing. 

\17 We based our estimate of interest on the total appropriations for
the FSLIC Resolution Fund and RTC, which were $42.7 billion and $56.6
billion, respectively.  Total appropriations of $99.3 billion for
FSLIC and RTC differ from the $124.6 billion in taxpayer costs
presented in table 3.  The difference of $25.3 billion represents the
taxpayer share of the REFCORP transaction, which is the present value
of the taxpayers' share of future interest expense on the bonds
issued by REFCORP.  The $25.3 billion has been excluded from the
calculation of estimated Treasury interest in order to avoid charging
interest on interest expense. 

\18 We used 7 percent because it represents a reasonable
approximation of the average long-term and short-term rates during
the years in which the appropriated funds were provided to FRF and
RTC.  A 30-year term was consistent with the majority of FICO and
REFCORP financing terms. 


         FUTURE FINANCING COSTS
         ASSOCIATED WITH THE
         CRISIS
-------------------------------------------------------- Letter :5.8.3

Significant resources will be needed in the future to pay the known
annual interest expense on the FICO and REFCORP bonds as well as the
estimated Treasury interest expense related to the crisis.  As shown
in table 5, $20.4 billion, or 18 percent of the total nominal
interest expense on FICO and REFCORP bonds has been paid through
December 31, 1995.  The remaining $91.4 billion, or 82 percent, will
be funded in the future. 

Future interest expense of approximately $18 billion remains to be
paid to cover the FICO bond interest.  Currently, insurance premiums
paid by certain SAIF-insured institutions are used to pay annual FICO
bond interest expense.\19 In 1995, the FICO interest expense
represented about 69 percent of insurance premiums earned on SAIF's
FICO-assessable base.  In recent years, the FICO-assessable base has
been shrinking, thereby increasing the burden of the FICO interest
expense relative to the size of the assessment base, and calling into
question the future ability of the FICO-assessable base to cover the
annual FICO interest expense.\20

Future interest expense of approximately $73.4 billion remains to be
paid on the REFCORP bonds.  The Federal Home Loan Banks will continue
to be responsible for paying $300 million each year toward the cost
of REFCORP interest expense until the bonds mature.  The remaining
portion of the REFCORP bond interest expense will be paid with
Treasury funds until the bonds mature in the years 2019, 2020, 2021,
and 2030. 

For purposes of analyzing the timing of estimated Treasury interest
expense on funds provided to pay the direct costs, we estimated that
approximately $176 billion of the $209 billion in estimated Treasury
interest expense, shown in table 5, related to future periods.\21
Under these assumptions, future estimated Treasury interest would
represent a significant claim on future federal budgetary resources. 



                                Table 5
                
                 Known and Estimated Interest Expense:
                           Timing of Funding

                         (Dollars in billions)


                                                        Throug
                                                             h
                                                           12/
                                                 Total   31/95  Future
----------------------------------------------  ------  ------  ------
Known interest expense
----------------------------------------------------------------------
Interest expense on FICO bonds                  $ 23.8   $ 5.8  $ 18.0
Interest expense on REFCORP bonds                 88.0    14.6    73.4
======================================================================
Total known interest expense on bonds           $111.8   $20.4  $ 91.4

Estimated interest expense
----------------------------------------------------------------------
Estimated interest expense on appropriations     209.0    33.0   176.0
======================================================================
Total estimated interest expense on             $209.0   $33.0  $176.0
 appropriations
----------------------------------------------------------------------

--------------------
\19 Insurance premium assessments paid to SAIF for thrift deposits
acquired by banks and deposits held by former thrifts that converted
to bank charters cannot be used to pay FICO bond interest expense. 

\20 Deposit Insurance Funds:  Analysis of Insurance Premium Disparity
Between Banks and Thrifts (GAO/AIMD-95-84, March 3, 1995). 

\21 The breakout of estimated Treasury interest between the amount
paid through December 31, 1995, and the future amount, was based on
the assumption that borrowing generally corresponded with the
transfer of appropriated funds to RTC and FRF. 


         CAPITALIZING SAIF
-------------------------------------------------------- Letter :5.8.4

FIRREA created SAIF to insure deposits previously insured by the
FSLIC, and set a designated reserve requirement of 1.25 percent of
insured deposits.  We consider the need to capitalize SAIF a
remaining fiscal implication of the crisis because insurance premiums
that could have been used to capitalize SAIF were used to pay a
portion of the direct costs of the crisis,\22 as well as annual
interest expense on the FICO bonds.  As a result, SAIF's
capitalization has been delayed, creating ongoing implications in
terms of high deposit insurance premiums. 

In order to be fully capitalized, SAIF would have needed $8.9 billion
in reserves based on the level of insured deposits at December 31,
1995.  However, at that date, SAIF had reserves of only $3.4 billion,
$5.5 billion below the designated reserve amount of $8.9 billion. 


--------------------
\22 The SAIF premiums used to resolve the savings and loan crisis are
included in the $22 billion of funding from private sources used to
pay FSLIC costs shown in table 3. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :6

Management is responsible for

  -- preparing annual financial statements in conformity with
     generally accepted accounting principles;

  -- establishing, maintaining, and assessing the internal control
     structure to provide reasonable assurance that the broad control
     objectives of FMFIA are met; and

  -- complying with applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether
(1) the financial statements are free of material misstatement and
presented fairly, in all material respects, in conformity with
generally accepted accounting principles and (2) RTC management's
assertion about the effectiveness of internal controls is fairly
stated in all material respects and is based upon the criteria
established under FMFIA.  We are also responsible for testing
compliance with selected provisions of laws and regulations and for
performing limited procedures with respect to certain other
information appearing in the financial statements. 

In order to fulfill these responsibilities, we

  -- examined, on a test basis, evidence supporting the amounts and
     disclosures in the financial statements;

  -- assessed the accounting principles used and significant
     estimates made by management;

  -- evaluated the overall presentation of the financial statements;

  -- obtained an understanding of the internal control structure
     related to safeguarding assets, compliance with laws and
     regulations, including the execution of transactions in
     accordance with management authority and financial reporting;

  -- tested relevant internal controls over safeguarding, compliance,
     and financial reporting and evaluated management's assertion
     about the effectiveness of internal controls; and

  -- tested compliance with selected provisions of the following laws
     and regulations: 

section 21A of the Federal Home Loan Bank Act (12 U.S.C.  1441a) and

Chief Financial Officers Act of 1990, sections 305 and 306 (Public
Law 101-576). 

We did not evaluate all internal controls relevant to operating
objectives as broadly defined by FMFIA, such as those controls
relevant to preparing statistical reports and ensuring efficient
operations.  We limited our internal control testing to those
controls necessary to achieve the objectives outlined in our opinion
on RTC management's assertion about the effectiveness of internal
controls.  Because of inherent limitations in any internal control
structure, losses, noncompliance, or misstatements may nevertheless
occur and not be detected.  We also caution that projecting our
evaluation to future periods is subject to the risk that controls may
become inadequate because of changes in conditions or that the degree
of compliance with controls may deteriorate. 

With the termination of RTC on December 31, 1995, an important phase
of the savings and loan crisis ended.  To provide an historical
perspective on RTC and its role in resolving the crisis, we obtained
and reviewed background information and data from RTC and FDIC.  In
addition, we obtained and analyzed audited financial information from
the following entities which had varying roles in resolving the
savings and loan crisis:  FSLIC, FICO, RTC, REFCORP, FSLIC Resolution
Fund, and SAIF. 

We conducted our audit from July 7, 1995, through June 7, 1996, in
accordance with generally accepted government auditing standards. 


   FDIC COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

FDIC provided written comments on a draft of this report because of
its responsibility for RTC's remaining assets and liabilities and its
role in preparing RTC's final financial statements.  In FDIC's
comments, provided in appendix III, the Corporation's Chief Financial
Officer acknowledges the weaknesses in general controls over RTC's
computerized information systems and discusses the status of RTC and
FDIC actions to correct them.  We plan to evaluate the adequacy and
effectiveness of those corrective actions as part of our audit of
FDIC's 1996 financial statements.  The Chief Financial Officer's
comments also discuss FDIC's involvement in RTC's transition and
FDIC's plans in assuming responsibility for closing out RTC's active
and completed contracts. 

Charles A.  Bowsher
Comptroller General
of the United States

June 7, 1996


RTC'S FINANCIAL STATEMENTS
=========================================================== Appendix I

   Statements of Financial
   Position

   (See figure in printed
   edition.)

   Statements of Revenues,
   Expenses, and Accumulated
   Deficit

   (See figure in printed
   edition.)

   Statements of Cash Flows

   (See figure in printed
   edition.)

   Notes to Financial Statements

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


MANAGEMENT'S REPORT ON INTERNAL
CONTROLS
========================================================== Appendix II



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


FDIC'S COMMENTS
========================================================= Appendix III



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

John J.  Reilly, Assistant Director
Lynda E.  Downing, Audit Manager
Jeanette M.  Franzel, Audit Manager
Christine A.  Robertson, Audit Manager
Vera M.  Seekins, Audit Manager
Oscar J.  Castro, Auditor
Gary Chupka, Auditor
Diane B.  Davis, Auditor
Phillip W.  McIntyre, Auditor
James V.  Rinaldi, Auditor

ATLANTA REGIONAL OFFICE

Shawkat Ahmed, Audit Manager
Alva Cain, Auditor
Fred Jimenez, Auditor
Lisa M.  Warde, Auditor

DALLAS REGIONAL OFFICE

James B.  Smoak, Auditor
Pamela Y.  Valentine, Auditor

DENVER REGIONAL OFFICE

Paul S.  Begnaud, Auditor
Miguel A.  Lujan, Auditor

KANSAS CITY REGIONAL OFFICE

Patricia S.  Dickerson, Audit Manager
Richard S.  Schupbach, Auditor

RELATED GAO PRODUCTS

Resolution Trust Corporation:  Implementation of the Management
Reforms in the RTC Completion Act (GAO/GGD-95-67, March 9, 1995)

Resolution Trust Corporation:  Evaluations Needed to Identify the
Most Effective Land Sales Methods (GAO/GGD-95-43, April 13, 1995)

1993 Thrift Resolutions:  RTC's Resolution Process Generally Adequate
to Determine Least Costly Resolutions (GAO/GGD-95-119, May 15, 1996)

Resolution Trust Corporation:  Management Improvements Reduce Risk
But Transition Challenges Remain (GAO/T-GGD-95-163, May 16, 1995)

Resolution Trust Corporation:  Management Improvements Reduce Risk
But Transition Challenges Remain (GAO/T-GGD-95-188, June 20, 1995)

Inspectors General:  Mandated Studies to Review Costly Bank and
Thrift Failures (GAO/GGD-95-126, July 31, 1995)

Resolution Trust Corporation:  Performing Assets Sold to Acquirers of
Minority Thrifts (GAO/GGD-96-44, December 22, 1995)


*** End of document. ***