Savings Loan Crisis

About Savings Loan Crisis

The Savings and Loan Crisis of the 1980s and early 1990s resulted in the failure of over 1,000 savings and loan institutions with total assets of over 500 billion. S&Ls had traditionally made long term mortgages funded by short term deposits. When interest rates rose in the early 1980s, S&Ls faced negative spreads, paying more on deposits than they earned on mortgages. The Garn-St Germain Act of 1982 allowed S&Ls to make riskier investments. Many S&Ls invested in junk bonds, real estate, and direct investments. The Federal Savings and Loan Insurance Corporation was overwhelmed. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 created the Resolution Trust Corporation to resolve failed S&Ls. The crisis cost taxpayers approximately 132 billion.