WASHINGTON -- The Bush administration said yesterday it would use a loophole in the bailout law adopted last year to borrow up to $18.8 billion to keep the rescue of the nation's savings and loans from grinding to a halt.
Under a complex calculation in the law, the new borrowing would enable the administration to spend an additional $8 billion to $10 billion to continue the rescue.
The decision by the Oversight Board of the Resolution Trust Corp., the agency overseeing the bailout, comes less than a week after Congress adjourned until next year with out authorizing any new funds for the bailout, which had virtually been out of money.
Last year's legislation authorized a "loss fund" of $50 billion to cover the losses of failed savings institutions. For working capital, the law enabled regulators to borrow up to 85 percent of the value of assets the government has taken over from failed institutions.
The regulators had run up against the 85 percent cap on working capital, and they had also spent more than $35 billion from the loss fund, leaving less than $15 billion as a reserve against working capital.
The effect of yesterday's decision is to remove the cap, thereby freeing an additional $8 billion to $10 billion for spending to continue the bailout.
The decision to borrow was based on a loophole that even the authors of last year's legislation have called a drafting error in the law, the Financial Institutions Reform, Recovery and Enforcement Act.
Literally interpreted, the provision enables the administration to borrow the additional $18.8 billion, even though the report accompanying the legislation acknowledges such an interpretation was clearly not what was intended by either the Congress or the administration when the law was passed.