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Savings and Loan Crisis (S&L) Crisis


The Savings and Loan (S&L) Crisis was a financial disaster that occurred in the United States during the 1980s and early 1990s. It involved the collapse of numerous savings and loan associations, primarily due to deregulation, risky investments, and poor management. The crisis led to a substantial loss of taxpayer money used to bail out struggling institutions and ultimately contributed to an economic recession.


The phonetic pronunciation of “Savings and Loan Crisis (S&L) Crisis” is:/ˈseɪvɪŋz ænd loʊn ˈkraɪsɪs/ (/ɛs ænd ɛl/ /ˈkraɪsɪs/)

Key Takeaways

  1. The Savings and Loan Crisis (S&L Crisis) was a major financial and economic catastrophe in the United States that occurred in the 1980s and early 1990s. It resulted from poor regulation, risky investments, and illegal activities by many savings and loan associations across the nation.
  2. As a result of the crisis, more than 1,000 savings and loan associations failed, costing the U.S. government over $120 billion in taxpayer-funded bailouts. This crisis severely weakened the U.S. financial system and contributed to the recession of the early 1990s.
  3. The aftermath of the S&L Crisis led to various regulatory and legislative reforms in the financial sector, including the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989, which implemented stricter regulations, capital requirements, and oversight of the savings and loan industry to prevent such a crisis from happening again.


The Savings and Loan Crisis (S&L Crisis) is important because it highlights the vulnerability of financial institutions and the need for robust regulatory frameworks. During the 1980s and early 1990s, the crisis led to the failure of approximately one-third of all savings and loan associations (S&Ls) in the United States, resulting in significant economic turmoil and the costliest taxpayer-funded bailout in the country’s history. The crisis was driven by numerous factors, including deregulation, interest rate volatility, risky lending practices, and fraud, which exacerbated losses and impaired public confidence in the financial system. Consequently, the S&L Crisis catalyzed financial sector reforms and supervision, reinforcing the importance of proper oversight mechanisms to safeguard financial stability and protect consumers.


The Savings and Loan (S&L) Crisis, which took place during the 1980s and early 1990s, was a financial disaster that originated in the United States and had far-reaching implications for the nation’s financial sector. One of the main purposes behind the creation of Savings and Loan Associations was to make homeownership more attainable for the average American by providing a reliable source of funds for mortgage lending. These institutions, which were thrifts with a specific focus on savings deposits and mortgage lending, played a vital role in shaping the country’s economic landscape, as they supported the dream of homeownership and facilitated the growth of the housing market. However, the S&L Crisis stemmed from a complex mix of factors, including deregulation of the industry, poor management, and inadequate oversight. This unfortunate combination led to a surge in risky lending practices, which proved to be unsustainable and eventually resulted in the collapse of numerous S&Ls. The crisis necessitated government intervention, as the magnitude of the losses threatened the stability of the financial system. In response, the federal government enacted a series of bailout measures, such as the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989, which aimed to restore public confidence, improve regulation, and prevent such a catastrophe from happening again in the future. Ultimately, the S&L Crisis served as a stark illustration of the dangers associated with unchecked market forces and the importance of close vigilance and adequate regulations in maintaining the stability and health of the financial sector.


The Savings and Loan Crisis (S&L Crisis) was a financial disaster that occurred in the United States during the 1980s and early 1990s. It was characterized by the failure of numerous savings and loan institutions (S&Ls), which were financial institutions that specialized in accepting savings deposits and making mortgage loans. Here are three real-world examples related to the crisis: 1. Lincoln Savings and Loan Association: One of the most well-known examples of the crisis was the failure of Lincoln Savings and Loan Association, which was headquartered in Irvine, California. Under the controversial leadership of Charles Keating, the institution engaged in aggressive and risky investments, eventually leading to its collapse in 1989. The failure of Lincoln Savings and Loan cost taxpayers an estimated $3.4 billion, becoming one of the most expensive S&L failures during the crisis. 2. The Bank Board: During the S&L Crisis, the Federal Home Loan Bank Board (Bank Board) was the primary regulator overseeing the savings and loan industry. Unfortunately, the Bank Board was unable to effectively regulate S&Ls, which contributed to the extent of the crisis. In response, the US government restructured the regulatory framework, eliminating the Bank Board and transferring its responsibilities to the newly-created Office of Thrift Supervision (OTS) and the existing Federal Deposit Insurance Corporation (FDIC). 3. Resolution Trust Corporation (RTC): In response to the S&L Crisis, the US government created the Resolution Trust Corporation in 1989. The RTC was responsible for managing and selling the assets of failed S&Ls. The goal was to recoup as much of the taxpayer-funded bailout as possible while simultaneously disposing of the troubled assets held by failed institutions. The RTC operated until 1995, when it was merged with the FDIC. During its existence, the RTC managed to recover around $394 billion of the total $402 billion in assets from failed S&Ls.

Frequently Asked Questions(FAQ)

What was the Savings and Loan Crisis (S&L Crisis)?
The Savings and Loan Crisis (S&L Crisis) refers to the financial collapse of the U.S. thrift industry that occurred during the 1980s and early 1990s. It resulted in the failure of many savings and loan associations and cost taxpayers an estimated $160 billion to resolve through government bailouts and resolutions.
What were the main causes of the S&L Crisis?
Several factors contributed to the S&L Crisis, including deregulation of the thrift industry, high inflation and interest rates, poor lending practices, fraud, and economic recession. Deregulation allowed savings and loan associations to engage in risky investments without adequate supervision, resulting in financial instability.
What was the impact of the S&L Crisis on the U.S. economy?
The S&L Crisis had a profound impact on the U.S. economy. In addition to the financial losses and cost of government bailouts, the crisis reduced credit availability for businesses and consumers, slowed the real estate market, and contributed to the economic recession of the early 1990s. The crisis also led to a loss of public confidence in financial institutions and regulatory agencies.
How did the government respond to the S&L Crisis?
The U.S. government took several steps to address the S&L Crisis, including the establishment of the Resolution Trust Corporation (RTC) to oversee the liquidation and resolution of troubled savings and loan associations, the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) to strengthen regulation and oversight, and the provision of financial assistance to affected institutions.
What were the key lessons from the S&L Crisis?
The S&L Crisis highlighted the importance of regulation and oversight in the financial industry, the need for financial institutions to maintain adequate capital reserves to absorb losses, and the risks associated with speculative real estate investments and complex financial instruments. It also underscored the potential economic and social costs of widespread financial institution failures.

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