Asset Management and Disposition Agreement (AMDA) Definition

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 Corporation (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. AMDAs became necessary when the Federal Savings and Loan Insurance Corporation (FSLIC) took over numerous failed S&Ls during the crisis.

Understanding an Asset Management and Disposition Agreement (AMDA)

The savings and loan financial (S&L) crisis was a result of the closure of 1,617 banks and 1,295 S&L institutions from 1980 to 1994, which resulted in a loss or assistance of $302.6 billion in bank assets and $621 billion in S&L assets. The majority of these banks, which were commonly called thrifts, 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, these banks were hit hard as it resulted in stagflation and a volatile interest rate environment.

Because there were more assets of failed S&Ls than the FDIC could handle on its own, the government created the Resolution Trust Corporation (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. 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.

Special Considerations

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.

The RTC liquidated a total of 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. These included;

• Purchase and assumptions
• Insured deposit transfers
• Open bank assistance
• Straight deposit payoffs

The percentage each used was 73.5%, 10.9%, 8.2%, and 7.4%, respectively.

The Bottom Line

The savings and loan industry was a slow-moving financial crisis that resulted in the failure of more than 3,000 institutions across the United States. The problem was the result of years of economic uncertainty, slow growth, lax lending standards, deregulation, and financial fraud. When it was too much to bear, financial regulators took over. But the assets of S&L institutions were too hard to manage, which is why the FDIC created the Resolution Trust Corporation. The RTC hired asset managers to sell off these assets through contracts called asset management disposition agreements.