Total Authorized RTC funding, 1989-1995: $105 billion
Total Public Sector Cost (FDIC estimate), 1986–1995: $123.8 billion
According to the FDIC (pdf), the Savings and Loan (S&L) crisis of the 1980s and early 1990s produced the greatest collapse of U.S. financial institutions since the Great Depression.
Savings and Loans (S&L) or thrifts originally served as community-based banking institutions for savings and mortgages. Federally chartered S&Ls could make a limited range of loan types.
From 1986 to 1989, the Federal Savings and Loan Insurance Corporation (FSLIC), the insurer of the thrift industry, closed or otherwise resolved 296 institutions with total assets of $125 billion. An even more traumatic period followed the 1989 Financial Institutions Reform Recovery and Enforcement Act (FIRREA), which created the Resolution Trust Corporation (RTC) to "resolve" insolvent S&Ls. By mid-1995, RTC resolved an additional 747 thrifts with total assets of $394 billion.
The official Treasury and RTC projections of the cost of the RTC resolutions rose from $50 billion in August 1989 to a range of $100 billion to $160 billion at the height of the crisis peak in June 1991. As of December 31, 1999, the thrift crisis had cost taxpayers approximately $124 billion and the thrift industry another $29 billion, for an estimated total loss of approximately $153 billion.
Factors contributing to the crisis:
FIRREA legislative history from THOMAS. House vote, 201 - 175; Senate agreed by Division Vote. In 1989, Congress was controlled by Democrats; recorded roll call votes appear to be partisan.
Total Public Sector Cost (FDIC estimate), 1986–1995: $123.8 billion
According to the FDIC (pdf), the Savings and Loan (S&L) crisis of the 1980s and early 1990s produced the greatest collapse of U.S. financial institutions since the Great Depression.
Savings and Loans (S&L) or thrifts originally served as community-based banking institutions for savings and mortgages. Federally chartered S&Ls could make a limited range of loan types.
From 1986 to 1989, the Federal Savings and Loan Insurance Corporation (FSLIC), the insurer of the thrift industry, closed or otherwise resolved 296 institutions with total assets of $125 billion. An even more traumatic period followed the 1989 Financial Institutions Reform Recovery and Enforcement Act (FIRREA), which created the Resolution Trust Corporation (RTC) to "resolve" insolvent S&Ls. By mid-1995, RTC resolved an additional 747 thrifts with total assets of $394 billion.
The official Treasury and RTC projections of the cost of the RTC resolutions rose from $50 billion in August 1989 to a range of $100 billion to $160 billion at the height of the crisis peak in June 1991. As of December 31, 1999, the thrift crisis had cost taxpayers approximately $124 billion and the thrift industry another $29 billion, for an estimated total loss of approximately $153 billion.
Factors contributing to the crisis:
- The phase-out and eventual elimination in the early 1980s of the Federal Reserve’s Regulation Q
- In the 1980s, state and federal deregulation of depository institutions, which allowed S&Ls to enter new but riskier loan markets
- Deregulation occurred without an accompanying increase in examination resources (for some years examiner resources actually declined)
- Reduced regulatory capital requirements
- The development during the 1980s of the brokered deposit market. A brokered deposit "is obtained from or through the mediation or assistance of a deposit broker." Brokered deposits have come under scrutiny in the 2008 Wall Street meltdown.
FIRREA legislative history from THOMAS. House vote, 201 - 175; Senate agreed by Division Vote. In 1989, Congress was controlled by Democrats; recorded roll call votes appear to be partisan.