Accelerated Resolution Program - Explained
What is an Accelerated Resolution Program?
Written by Jason Gordon
Updated at July 10th, 2021
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Table of Contents
What is an Accelerated Resolution Program?How does an Accelerated Resolution Program Work?Academics Research on Accelerated Resolution Programs (ARP)What is an Accelerated Resolution Program?
An Accelerated Resolution Program (ARP) is a scheme or strategy through which assets of failed institutions are sold to large institutions. This is a program devised to resolve failed financial institutions by transferring their insolvency to stronger and solvent institutions. In most cases, failed financial institutions are bankrupt and in ruins, the ARP method achieves an easier process of resolving these failed institutions by promptly transferring or selling their assets to healthy institutions. ARP saves expenses and time attributable to insolvency resolution process of failed financial institutions.
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How does an Accelerated Resolution Program Work?
ARP became popular during the savings and loans crisis in the 1980s. The savings and loans crisis was a period when 1,043 out of the 3,234 savings and loan (financial and thrift) organizations in the United States failed and became insolvent. The Accelerated Resolution Program (ARP) as a response to the need to resolve failed financial institutions promptly. ARP was designed as a program that hastens the resolve processes that RTC an OTS undertake. Basically, ARP transfer or sell the assets of these failed institutions to healthier ones which are often large institutions. Another important goal of ARP is to reduce the costs and time that taxpayers are exposed to when trying to resolve failed institutions. ARP requires little finding from the government, this finding will cover the purchase of bad assets and other losses before ARP is able to sell other good assets of the failed institutions to interested but healthy institutions. For example, delinquent loans are difficult to sell, funding from the government capver losses resulting from this type of loan. Any transaction that entails resoling a failed financial institutions done using ARP is regarded as an aided transaction.
Academics Research on Accelerated Resolution Programs (ARP)
- Early resolution of troubled financial institutions: An examination of the accelerated resolution program, Stover, R. D. (1997). Early resolution of troubled financial institutions: An examination of the accelerated resolution program. Journal of Banking & finance, 21(8), 1179-1194. This article talks more on the empirical research on the auctions of botched financial institutions by investigating the thrift industry Accelerated Resolution Program as a substitute to the usual auction procedures. The office of Thrift Supervision (OTC) and the Resolution Trust Corporation (RTC) working together with the main aim to mediate before insolvency thus reducing the regulatory expenses. The difference with previous research shows that no evidence is available to determine that wealth transfer arose in the RTC auctions. Additionally, though Accelerated Resolution Program produced positive irregular returns, there is still no evidence of wealth transfer.
- Failure and failure resolution in the US thrift and banking industries, Gupta, A., & Misra, L. (1999). Failure and failure resolution in the US thrift and banking industries. Financial Management, 87-105. The article reviews the current academic and regulatory studies on the causes of crisis, the price tags of the different regulatory approaches used to fight the crisis, and the transformations resulting from the enactment of FIRREA in 1989and the FDCICIA in 1991. The information obtained is used to verify a set of characteristics that are significant for establishing a regulatory structure for federally insured financial institutions. A summary of the political, economic forces and public policies that led to the crisis highlighted and thereafter, propose effective regulatory strategies for solving the problem at hand.
- Assessing the Resolution of Insolvent Thrift Institutions Post FIRREA: The Impact of Resolution Delays, Varaiya, N. P., & Ely, D. P. (1997). Assessing the Resolution of Insolvent Thrift Institutions Post FIRREA: The Impact of Resolution Delays. Journal of Financial Services Research, 11(3), 255-282. The Resolution Trust Corporation (RTC) was founded by FIRREA in 1989 to manage and dispose of problematic thrifts in a way that would lessen the resolution costs. The studys major focus is on the change of troubled thrifts from a safeguard into a decision to sel in the RTC auctions. Tests are carried out on; determinants of bidder participation, observed premiums, RTC estimates on resolution costs, impacts of resolution delays in RTC-insured-deposit-transfer and assumption auctions from August 1989 November 1991. Results shows that resolution delays were connected with smaller premiums and greater resolution costs.
- A Model of the Asset Disposition Decision of the RTC, Lea, M., & Thygerson, K. J. (1994). A Model of the Asset Disposition Decision of the RTC. Real Estate Economics, 22(1), 117-133. The articles main goal is to create a model to be used for asset disposition decision for the Resolution Trust Corporation (RTC). The paper primarily focuses on RTCs goal to capitalize on the net present value of the cash flows generated through retaining and selling of the assets acquired. The deciding factor is whether to hold or sell the asset which is influenced by several factors. First, RTCs discount rate versus that of the marginal buyer. Secondly, the assets to be sold first and which ones the sale can be delayed. The model thus develops a set of optimal disposition rules based on the principle of multi-period cash flow maximization. For instance, liquid assets and retail deposit franchises should be sold as fast as possible as compared to illiquid non-performing assets which are good for equity participation financing.
- The measure of a regulator: the Office of Thrift Supervision, 19892011, Woods, P. D. (2016). The measure of a regulator: the Office of Thrift Supervision, 19892011. In Banking Modern America (pp. 139-155). Routledge. The article highlights the Office of Thrift Supervision (OTS) on its role as a federal agency in fostering home ownership. It was established during a period of great financial crisis. It is different from the other financial institutions such as the OCC, the Federal Reserve and the FDIC as its main responsibility was to support a section of the banking system that had just survived current crisis. The solution that was agreed by Congress was to change the thrift industry itself, by giving it extended bank-like controls, at the same time upholding its long established mission of promoting home ownership.