What Was an Asset Management and Disposition Agreement (AMDA)?
An asset management and disposition agreement (AMDA) was a type of contract between the Federal Deposit Insurance Corp. (FDIC) and an independent contractor that oversaw and sold the assets of failed savings and loan (S&L) institutions during the S&L crisis of the 1980s and 1990s.
Asset management and disposition agreements (AMDAs) became necessary when the Federal Savings and Loan Insurance Corp. (FSLIC) took over numerous failed S&Ls (also called “thrifts”) during the crisis, acquiring billions of dollars’ worth of assets in the process. When the FSLIC (which was to the S&L industry what the FDIC is to the banking industry) failed during the crisis, it was abolished in 1989, and the FDIC became the head of the FSLIC Resolution Fund.
- An asset management and disposition agreement (AMDA) was a contract between the Federal Deposit Insurance Corp. and independent contractors hired to assist with the fallout of savings and loans (S&L) institutions during the S&L crisis of the 1980s and 1990s.
- The FDIC and the Resolution Trust Corp (RTC) were responsible for the sale of assets of failed banks during the crisis. Because these entities did not have the capacity to resolve all sales themselves they contracted third parties under AMDAs.
- Ninety-one contractors worked under these agreements in the early 1990s to handle $48.5 billion in assets.
- The contractors received management fees, disposition fees, and incentive fees in exchange for their work.
- The savings and loan crisis was an extremely large and damaging financial crisis that was comparable to the Great Depression.
Understanding an Asset Management and Disposition Agreement (AMDA)
The savings and loan financial crisis was a result of the closure of 1,617 banks and 1,295 savings and loan institutions from 1980 to 1994 that resulted in a loss or assistance of $303 billion in bank assets and $621 billion savings and loan assets. The majority of these banks were small with their foundations built in the energy and agriculture sector. When the U.S. energy sector took a hit during the late 1970s, which resulted in stagflation and a volatile interest rate environment, these banks were hit hard.
Because there were more assets of failed S&Ls than the FDIC could handle on its own, the government created the Resolution Trust Corp. (RTC), whose purpose was to resolve all thrifts placed under conservatorship or receivership between Jan. 1, 1989, and Aug. 8, 1992.
The RTC did not have the capacity to resolve all the failed S&Ls and was required to contract the work out to the private sector where practical. Asset management and disposition agreements (AMDAs) were the partnership agreements that formed the legal framework for the work. Ninety-one contractors worked under these agreements in the early 1990s to handle $48.5 billion in assets.
Asset specialists who worked for the FDIC or RTC handled or oversaw the transactions. The contractors received management fees, disposition fees, and incentive fees in exchange for their work in managing performing assets and disposing of nonperforming ones. Some of the funds received through AMDAs were put toward further resolving the crisis.
Managing Failed Assets
AMDAs were one of many tools the government employed in resolving the S&L crisis. Some of the other tools for managing and liquidating assets during the crisis included the Federal Asset Disposition Association, the FSLIC-owned and newly created S&L asset liquidation agreements (ALAs), which were used to dispose of pools of distressed assets worth at least $1 billion, and regional ALAs for smaller pools of less than $500 million.
In total, the RTC liquidated 747 insolvent S&Ls during the crisis. These entities had $402.6 billion in assets and the cost to the RTC was $87.5 billion. The failed banks that the FDIC handled had $302.6 billion in assets and it cost the FDIC $36.3 billion to manage these failed entities.
The FDIC resolved these bank failures in four primary ways: (1) purchase and assumptions, (2) insured deposit transfers, (3) open bank assistance, and (4) straight deposit payoffs. The percentage each was used was 73.5%, 10.9%, 8.2%, and 7.4%, respectively.