Here is a nice crisp synopsis of Resolution Trust that will be responsible for managing the $700 million in bad loans.  RTC was set up to unwind $394 Bn of bad loans following the Savings and Loan failures in the 1980’s.  There were 747 S&L failures in that period.  America has a history of Bank failures. 

Here is the synopsis at Street.com

The RTC provided two functions. It shuttered many of the failing institutions, which wound up totaling 747. The total amount of assets equalled $394 billion. It then liquidated those assets over a period of time until it was folded back into another federal agency — the Federal Deposit Insurance Corporation (FDIC).

According to analysis by the FDIC, the total amount incurred by the taxpayer came to $75.6 billion, while the private sector absorbed just $7.1 billion. The taxpayer covered more than 90% of the cost of the bailout. The FSLIC also accumulated losses. The total tab to the taxpayer as of 1999 came out to $123 billion, or about 81% of the total costs.

It appears they had decent success.  The new tab this time around is only double the amount at $700 Bn … not much if you say it really fast.  Given there has been nearly 20 years elapsed, in real terms this failure may in fact be a similar amount.  In retrospect, if this brings back confidence to US Banks, it will be the best way out of a bad situation. 

The key though is that the remaining Banks must be required to alter their approaches and focus on balance sheet strength, not quarterly shareholder satisfaction.  It is time to revisit the bank model of low capital, high profits and dividends.  Its time to treat Banks as if they were normal companies, and all the financial measures that come with that accountability.