Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA, 1989)

1) Link to the Text of the Act
Read the statute (12 U.S.C. §§ 1811 et seq.)

2) Why It Was Done
Passed in response to the Savings and Loan crisis, FIRREA overhauled regulation of thrift institutions, abolished the Federal Home Loan Bank Board, created new oversight agencies, and authorized taxpayer funds to resolve failing S&Ls.

3) Pre-existing Law or Constitutional Rights
Previous deregulation under DIDMCA (1980) and Garn–St Germain (1982) had allowed excessive risk-taking, leading to collapse. FIRREA imposed stricter regulation and accountability, but did not alter constitutional rights.

4) Overreach or Proper Role?
Supporters said it was essential to restore stability and protect depositors. Critics saw it as a massive federal bailout, with taxpayers footing the bill for reckless deregulation and industry mismanagement.

5) Who or What It Controls

  • Savings & Loan Associations (Thrifts) (subjected to stricter oversight and capital requirements)
  • FDIC (took over insurance responsibility from the defunct FSLIC)
  • Office of Thrift Supervision (OTS) (created to regulate thrifts)
  • Resolution Trust Corporation (RTC) (created to liquidate failed S&Ls)
  • Bank executives (subject to enhanced penalties for misconduct)

6) Key Sections / Citations

  • 12 U.S.C. § 1811: Strengthened FDIC authority
  • 12 U.S.C. § 1821: Created the Resolution Trust Corporation (RTC)
  • Title IX: Expanded enforcement powers against unsafe or fraudulent practices

7) Recent Changes or Live Controversies

  • The RTC was dissolved in 1995 after resolving over 700 S&Ls.
  • FIRREA’s expanded enforcement provisions are still used today in financial fraud cases (including actions after the 2008 crisis).
  • Continues to be cited in debates over government bailouts vs. market discipline.

8) Official Sources