Question

6. Explain the main factors that drove the S&L crisis of the 1980s, and describe how the federal government responded to the crisis.

Answer 1

S & L Meaning The Savings and Loan

This is one of the biggest financial scandals in U.S. history. The Savings and Loan Crisis originated in the late 1970s and came to a head in the 1980s and finally ending in the early 1990s.

In 1970s period interest rate interest rate climate was volatile/flexible thats reason for large numbers of depositors withdraw their funds from savings and loan institutions and shifted or invested in money market for higher rate of interest.

The U.S. Savings and Loan Crisis in the late 1980s, and was one of the biggest financial crises.

This crises is one of the major changes happened in that period.

This crisis occured due to various causes such as weak regulation, moral hazard, and a tough economic

atmosphere, all of which ruined the thrift industry.

also criminality, a higher deposit insurance limit, brokered deposits, and faulty audits of S&Ls was the factor of crises.

In response to the crisis U.S. government eventually spent more than $100 billion to settle the crisis.

After this crisis government raise and made two new laws or acts to controll these type of issues.

Financial Institutions Reforms, Recovery, and Enforcement Act of 1989 (FIRREA), and the

Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),

In the late 1980s, Congress was decided to address the thrift industry’s problems. In 1989 it passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 that instituted a number of reforms of the industry.

The main S&L regulator (the Federal Home Loan Bank Board) was abolished, as was the bankrupt FSLIC. In their place, Congress created the Office of Thrift Supervision and placed thrifts’ insurance under the FDIC

Unfortunately, the commercial banking industry also suffered its own set of problems over this period, both in Texas and elsewhere.

This banking crisis also resulted in major reform legislation that paved the way for a period of stability and profitability