FIRREA stands for the Financial Institutions Reform, Recovery, and Enforcement Act. Enacted in 1989 in response to the savings and loan crisis in the United States, FIRREA imposed various reforms and regulatory measures for financial institutions to prevent future failures and promote stability in the banking system.
Under FIRREA, several key provisions were established to strengthen the regulation and supervision of depository institutions. It established the Office of Thrift Supervision (OTS) to oversee savings and loan associations, which were at the center of the crisis. Additionally, FIRREA created the Resolution Trust Corporation (RTC) to manage and dispose of failed thrifts' assets and liabilities.
One crucial aspect of FIRREA was the establishment of higher capital requirements for banks and thrifts to ensure their soundness and ability to withstand economic downturns. It also introduced risk-based capital ratios, which take into account the riskiness of a financial institution's assets.
Furthermore, FIRREA enhanced the powers and authority of regulatory agencies, such as the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), to intervene early and take corrective actions when financial institutions were facing financial stress or insolvency.
In addition to the regulatory reforms, FIRREA imposed penalties and enforcement mechanisms to address fraudulent activities and white-collar crimes in the banking and financial sectors. It expanded the powers of law enforcement agencies to investigate and prosecute such offenses, leading to increased enforcement actions and criminal charges against individuals involved in financial fraud.
Overall, FIRREA aimed to mitigate systemic risks, improve the stability of the banking system, and enhance consumer protection by implementing comprehensive regulatory reforms, capital requirements, and enforcement mechanisms.
