What Was the Federal Savings And Loan Insurance Corporation (FSLIC)?

The Federal Savings and Loan Insurance Corporation (FSLIC) is a defunct U.S. government institution that provided deposit insurance to savings and loan institutions until its dissolution at the end of the 1980s. Its responsibilities were transferred to the Federal Deposit Insurance Corporation (FDIC) in 1989.

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Federal Deposit Insurance Corporation (FDIC)

Understanding the Federal Savings And Loan Insurance Corporation (FSLIC)

The FSLIC was first established by Congress in 1934 as part of the National Housing Act. Created on the heels of the Great Depression, the FSLIC served as a safety net for the savings and loan industry. After the industry's essential collapse during the Depression, the government sought to restore confidence in the security of savings and loan accounts by backing them up so that if any given institution went under, the depositors' funds would still be safe. Deposits up to $100,000 were insured.

Key Takeaways

  • The FSLIC was an agency established by Congress in 1934 as part of the National Housing Act to serve as a safety net for the savings and loan industry.
  • The savings and loan crisis strained FSLIC's finances and resulted in its downfall.
  • The savings and loans industry is now insured by the Regulation Trust Corporation (RTC).

The FSLIC was regulated by the Federal Home Loan Bank Board (FHLBB). In comparison to FDIC, the FHLBB had a smaller staff and and weaker authority to govern the S&L industry, which, for the most part, was fairly traditional and adhered to regulatory concerns adequately. A combination of the loosening of regulation that allowed S&L institutions to make risky loans and the raising of deposit insurance coverage levels transformed the staid industry into a risky one. At the height of the savings and loans crisis, approximately one-third of financial institutions offering home loans to individuals and families had defaulted. In the end, the FSLIC stepped in to stem the tide of insolvencies. But that role had an adverse effect on its financials and, eventually, the agency was abolished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA later overhauled the savings and loan industry and its regulation in response to the savings and loan crisis.

Various estimates were put forward at that time to save the FSLIC. Officials from the Government Accountability Office (GAO) estimated that a bailout of the FSLIC would cost between $30 billion to $35 billion. A month later, the head of the Federal Deposit Insurance Corporation (FDIC), L. William Seidman, said $50 billion would be required. The GAO itself revised its estimates to $46 billion by the next year. By 1989, the FSLIC was past the point of saving, as it was already drawing on large amounts of taxpayer money to provide the necessary funds to keep savings and loans institutions afloat. The FSLIC Resolution Fund, financed by the Financing Corporation (FICO), was created to assume responsibility for all lingering debts after the FSLIC was abolished.

How is the Savings and Loan Industry Insured Today?

After the FIRREA took effect, the FSLIC's responsibility of insuring savings and loan institutions was transferred to the Resolution Trust Corporation (RTC), which merged into the Federal Deposit Insurance Corporation six years later. The FDIC, also created in response to the Great Depression, already insured deposits in commercial banks, so its responsibilities broadened to include individual savings and loan accounts. The 2011 Dodd-Frank Wall Street Reform and Consumer Protection Act increased the insurance limit from $100,000 to $250,000.

Prior to the FSLIC's dissolution, billions of dollars of taxpayer money were used to keep the fund afloat and operational, but no taxpayer money has contributed to the FDIC's insurance funds. The FDIC has a $100 billion credit line through the U.S. Department of the Treasury. Credit unions are separately insured by the National Credit Union Administration, which has the same insurance limit as the FDIC.