Brady Says $40 Billion More Is Needed for S&L; Cleanup

The Bush Administration said Wednesday that the savings and loan rescue effort will need another $40 billion to keep the special agency handling the cleanup in business.

Congress must provide additional funds for Resolution Trust Corp. “before it adjourns” for the year, Treasury Secretary Nicholas F. Brady said in a letter to Sen. Jake Garn (R-Utah), ranking minority member of the Senate Banking Committee.

Congressional debate over billions of dollars in new funds seems likely to focus renewed election-season attention on the S&L; crisis, which has been pushed off the front pages by the Persian Gulf crisis and the federal budget impasse. Recognizing the political sensitivity of the issue, Brady declined to make a direct and specific request for money. Instead, he said that several methods of providing the funds would be acceptable.

Brady said Congress could provide a “permanent indefinite appropriation”--in effect, a blank check--to the Resolution Trust Corp. The RTC has the task of disposing of insolvent S&Ls; and paying off depositors, whose accounts are insured up to $100,000. The funding for the S&L; cleanup also would provide the buyers of crippled thrifts with guarantees against future losses on real estate and other assets of the institutions.

But Congress, worried about the escalating costs associated with the thrift cleanup, has refused to provide an open-ended supply of money.

Instead, the legislators want to furnish the money on a piecemeal basis, perhaps through next April 30, to assure leverage over the operations of the RTC.

“We understand that Congress may be more inclined to provide interim funding for all or part of fiscal 1991,” Brady acknowledged in his letter.

The RTC will be virtually broke by the end of this year, having used $49 billion of the $50 billion voted by Congress in 1989 for the thrift rescue program, Brady acknowledged.

The remaining $1 billion would be quickly overwhelmed by the growing caseload of crippled thrifts seized by the RTC.

“It’s impossible for Congress to adjourn and come back in January and still have the Resolution Trust Corp. operating,” said Jake Lewis, a spokesman for the House Banking Committee.

Brady’s letter was issued late Wednesday in response to appeals the day before from the chairmen of Congress’ banking committees, Sen. Donald W. Riegle Jr. (D-Mich.) and Rep. Henry B. Gonzalez (D-Tex.).

“The Banking Committees and the Congress need a specific plan from the Administration as to the amount of funds needed for each category of activity, and the time period over which these funds are needed,” Riegle and Gonzalez said in a letter to Brady.

“We are now just 10 days away from the end of this session,” Riegle and Gonzalez said. “We still have not received a specific request from the Administration.”

In response, Brady said, “The public interest requires that we proceed in a bipartisan manner to assure that the RTC can continue with its important work.”

The House Banking Committee held a caucus Wednesday and voted to have the massive new funding for the S&L; bailout considered as a separate bill. It would not be included in the budget package now being prepared by Congress.

The $40 billion needed in fiscal 1991 would pay for direct permanent losses involved with failed thrifts.

The RTC also needs additional “working capital” to use temporarily for shutting down thrifts, money that would eventually be recouped by the government from the sale of S&L; assets. The RTC now must set aside a reserve equal to 15% of the money it borrows in the bond market to use as working capital.

This borrowing cap threatens to “prematurely halt RTC operations,” Brady warned. He said Congress could provide an additional $17 billion to serve as the RTC reserve, allowing the agency to use its full borrowing powers. Or Congress could vote to eliminate the requirement for a reserve entirely, he said.