Savings And Loan Crisis - S&L

AAA

DEFINITION of 'Savings And Loan Crisis - S&L'

One of the largest financial scandals in U.S. history, the Savings and Loan Crisis emerged in the late 1970s and came to a head in the 1980s, finally ending in the early 1990s. In the volatile interest rate climate of the '70s, large numbers of depositors removed their funds from savings and loan institutions (S&Ls) and put them in money market funds, where they could get higher interest rates since money market funds weren't governed by Regulation Q, which capped the amount of interest S&Ls could pay to depositors. S&Ls, which were largely making their money from low-interest mortgages, did not have the means to offer higher interest rates, though they tried to once interest rate ceilings were dropped in the early '80s. As S&L regulations loosened, they engaged in increasingly risky activities, including commercial real estate lending and investments in junk bonds.

Also known as "thrifts".

INVESTOPEDIA EXPLAINS 'Savings And Loan Crisis - S&L'

Because S&L deposits were insured by the Federal Savings and Loan Insurance Corporation (FSLIC), depositors continued to put money into these risky institutions. A complex web of these factors and others, combined with widespread corruption, led to the insolvency of the FSLIC, the government bailout of the thrifts to the tune of $124 billion in taxpayer dollars and the liquidation of 747 insolvent S&Ls by the U.S. government's Resolution Trust Corporation. One of the largest S&L failures was that of Lincoln Savings & Loan, part of the Keating Five scandal which exposed the political corruption that was part of the S&L Crisis.

RELATED TERMS
  1. U.S. League Of Savings Institutions

    A now-defunct nationwide organization of savings institutions. ...
  2. Federal Savings and Loan

    A federally chartered savings and loan is a banking institution ...
  3. Depository Institutions Act of ...

    A law passed by Congress with the intent of making savings and ...
  4. Garn-St. Germain Depository Institutions ...

    A law enacted by Congress in 1982 to enable banks and other savings ...
  5. Commercial Bank

    A financial institution that provides services, such as accepting ...
  6. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
RELATED FAQS
  1. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  2. What measures could the U.S. Government take to prevent another crisis similar to ...

    Some of the measures that the U.S. government can take to prevent another crisis similar to the savings and loan (S&L) ... Read Full Answer >>
  3. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  4. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. What major events and policy decisions led to the savings and loan crisis (S&L crisis)?

    The major events and policy decisions that led to the Savings and Loan Crisis were a period of volatility for interest rates ... Read Full Answer >>
  6. Why have austerity policies failed to stabilize Greece's economy?

    Austerity policies are intended to reduce government debt and bring stability to that nation's economy. Austerity's effectiveness ... Read Full Answer >>
Related Articles
  1. Insurance

    Top 6 U.S. Government Financial Bailouts

    U.S. bailouts date all the way back to 1792. Learn how the biggest ones affected the economy.
  2. Home & Auto

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  3. Insurance

    Riding The Market Bubble: Don't Try This At Home

    Riding the bubble takes timing, a clear understanding of the market and, most of all, a lot of luck.
  4. Insurance

    A Nightmare On Wall Street

    These tales of banking terror sent shivers down the spines of even the most steadfast bankers.
  5. Mutual Funds & ETFs

    The 2007-08 Financial Crisis In Review

    If you don't know how the recession began, read on to learn more.
  6. Savings

    What’s Behind The Sluggish Economic Recovery

    While the economy is improving, the rate of improvement is much lower than economists had expected. Estimates for Q2 GDP have collapsed to 2.5% from 3.2%.
  7. Investing

    What is Basel III?

    The purpose of the Basel accords is to improve the worldwide bank regulatory framework.
  8. Investing

    Market Crisis: Does Diversification Still Work?

    If you still aren’t sold on the benefits of international diversification, you may object that: Diversification didn’t work during the last market crisis.
  9. Investing Basics

    The Dodd-Frank Wall Street Reform Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, was passed in 2010. The goal of the act is to prevent another great recession like that of 2008, which ...
  10. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!