FACTBOX: "Bad bank" remedies for financial crisis

(Reuters) - The U.S. Treasury Department and the Congress are working through the weekend to hammer out details of a plan how to spend of billions of federal dollars to rescue banks from bad mortgage assets now choking the financial system and threatening an economic recession.

The plan marks a shift from case-by-case financial rescues to a broad systemic crisis management and would be the most comprehensive federal bailout since the savings and loan bailout of the 1980s and 90s.

The plan would have some similarities to the Resolution Trust Corp, or RTC, the "bad bank" system Congress created in 1989 to take on bad loans, real estate and other non-performing assets plaguing failed thrift institutions.

Following are some elements of the original RTC and elements that may be adopted in the Treasury's asset clean-up plan.

THE ORIGINAL RTC

* RTC set up in 1989 to manage troubled assets of banks and savings and loan institutions after the Federal Savings and Loan Insurance Corp became overwhelmed by thrift failures.

* RTC closed 747 institutions with assets of $394 billion from 1989 through mid-1995. Combined with FSLIC closures, there were a total of 1,043 institutions closed in the S&L crisis from 1986 through mid-1995, with $519 billion in assets.

* RTC was initially capitalized with $50 billion, including $30 billion in bonds issued by a public-private funding corporation and $20 billion from the Treasury and Federal Home Loan Banks. This quickly proved insufficient and Congress made subsequent appropriations bringing the total funding to $105.1 billion.

* RTC was wound up in 1996 and its remaining tasks were transferred to the Federal Deposit Insurance Corporation.

* RTC and FSLIC direct costs to resolve problem assets totaled $145.7 billion, according to FDIC estimates. Indirect costs, chiefly lost revenues to the federal government and the higher interest cost associated with RTC-related bonds, totaled $7.3 billion, bringing the total bill to $153 billion.

* FDIC estimates that through 1999, the S&L crisis cost taxpayers $124 billion and the thrift industry another $29 billion.

* Other estimates for the total S&L cleanup run as high as $500 billion when the economic cost of lost gross domestic product is included. U.S. Sen. Richard Shelby, the top Republican on the Senate Finance Committee, recently said the crisis cost about $300 billion.

THE NEXT RTC?

* U.S. Treasury Secretary Henry Paulson will propose specific legislation in the next week to remove troubled illiquid assets that are weighing down financial institutions and threatening the U.S. economy.

* The Treasury, Fannie Mae and Freddie Mac will boost purchases of good-quality mortgage backed securities to keep funds flowing to home buyers. Those that do not meet their standards may be put into the rescue program.

* Details of the plan are expected to be hammered out with congressional leaders over the weekend, but the cost will be in the "hundreds of billions of dollars," Paulson said on Friday.

OECD IDEAS PROPOSED IN APRIL

* Create RTC, which takes over all Residential Asset-Backed Securities (RMBS) and takes the collateral that goes with it, essentially claims on the mortgagees' homes.

* RTC issues its own notes, which are exchanged for the RMBS held by the investors in these bonds, essentially CDOs, conduits, hedge funds and pension funds.

* RTC has guarantee in form of U.S. Treasury-issued bonds with a zero coupon, and for example, a 5 percent rate of interest with 20-year maturity.

* Interest income from mortgages allows RTC to pay interest to those who invest in RTC bonds.

* "Haircut" taken by those who surrender RMBS paper to RTC is based on a default model estimate of value.

DIFFERENCES/PITFALLS

* How fast it can be in place. The original RTC was announced in February 1989, but took until August 1989 to finalize talks on remit and oversight between Congress and the White House, under then President George H.W. Bush.

* Paulson and lawmakers have stressed that the program needs to be put in place as quickly as possible to ease massive financial market pressures that are threatening to cause a cascade of financial institution failures and choke off economic growth. A new agency may take too long to set up.

* Many of the assets unwound by RTC were commercial real estate and related loans that had inherent value at lower levels. The current crisis stems from more complex securitized mortgage debt and other asset-backed debt that may be more difficult to sell off and unwind.

* This time, the so-called toxic mortgage-based assets are only part of a wider web of assets that are held by a far more diverse group, which includes pension funds and insurers, that extends well beyond U.S. borders.

(Compiled by David Lawder and Brian Love, additional reporting by Al Yoon; editing by Gary Crosse)