postheadericon Savings And Loan Crisis (S&L)

What is the ‘Savings And Loan Crisis – S&L’

The Cost Savings and Loan (S&L) Crisis began under the unstable interest rate environment of the 1970s, when vast varieties of depositors removed their cash from the S&L institutions and transferred it in money market funds. This permitted greater rates of interest, due to the fact that the funds were not governed by Regulation Q. Next Up Resolution Financing Corporation … Property Management and Personality … Federal Cost Savings And Loan Insurance Coverage … Federal Cost Savings and Loan

BREAKING DOWN ‘Savings And Loan Crisis – S&L’

As soon as policies were loosened up, S&Ls began participating in high-risk activities, such as business realty lending and financial investments in junk bonds, to cover losses. Depositors in S&Ls continued to funnel cash into these dangerous ventures since their deposits were guaranteed by the Federal Savings and Loan Insurance Corporation (FSLIC).

The Texas Circumstance

The crisis was felt twice over in Texas, where at least half of the stopped working S&Ls were based. The collapse of the S&L industry pushed the state into a high economic downturn. Bad land financial investments were auctioned off, causing real estate prices to drop. Workplace vacancies rose significantly, and the rate of crude oil dropped off by half. Texas banks, such as Empire Savings and Loan, took part in criminal activities that even more drove the Texas economy into the ground.

The Federal Cost Savings and Loan Insurance Corporation and State-Run Funds

The FSLIC was established to provide insurance for people depositing their hard-earned funds into S&Ls. When S&L banks failed, the FSLIC was left holding a $20 billion check that inevitably left the corporation bankrupt. The defunct company can be compared to the Federal Deposit Insurance Corporation (FDIC) that oversees and insures deposits today.

The Keating Five Scandal

Throughout this crisis, five U.S. senators– the Keating Five– were investigated by the Senate Ethics Committee due to the $1.5 million in project contributions they accepted from Charles Keating, the head of the Lincoln Cost Savings and Loan Association. These senators also pressured the Federal House Loan Banking Board to overlook suspicious activities in which Keating had participated.

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