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Highlights
- Purpose: FICO was established to fund savings and loan institutions through bond issuance.
- Operations: It raised capital by selling bonds to stabilize the financial sector.
- Legacy: FICO’s role diminished as the Resolution Funding Corporation (REFCORP) took over.
Overview
The Financing Corporation (FICO) was a government-sponsored entity created in 1987 to address financial instability in savings and loan institutions. It played a key role in stabilizing the financial system by raising funds through bond issuance. The corporation was established under the Competitive Equality Banking Act (CEBA) of 1987, in response to the savings and loan crisis that threatened many financial institutions in the United States.
Purpose and Role
FICO’s primary objective was to generate capital to support the Federal Savings and Loan Insurance Corporation (FSLIC), which insured deposits in savings and loan institutions. By issuing bonds, FICO provided financial support to struggling institutions, preventing widespread collapse in the banking sector.
Funding Mechanism
The corporation financed itself by selling bonds to investors, using the proceeds to strengthen the FSLIC. These bonds were backed by the U.S. government, ensuring investor confidence. However, FICO did not directly oversee banking operations; its role was strictly financial.
Transition and Decline
Over time, as financial reforms evolved, the need for FICO diminished. The Resolution Funding Corporation (REFCORP) took over similar responsibilities under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. FICO’s bond obligations continued until they were fully paid off, marking the end of its operational relevance.
Conclusion
FICO played a crucial role in stabilizing the financial sector during the savings and loan crisis by raising capital through bond sales. While its functions were eventually absorbed by other entities, its contribution to financial stability remains a significant part of U.S. financial history.
