Savings and Loan Crisis

The savings and loan crisis was the failure of roughly a third of the savings and loan associations, or thrifts, operating in the United States between 1986 and 1995, ultimately costing American taxpayers about 124 billion dollars and the thrift industry itself a further 29 billion. The crisis grew out of the high interest rates of the early 1980s, which squeezed thrifts holding long-term fixed-rate mortgages, followed by deregulation that let thrifts expand into riskier commercial lending and real estate investment without commensurate increases in regulatory oversight, and compounded in some cases by outright fraud. In total 1,043 thrifts holding 519 billion dollars in assets failed, and the government's resolution through the Resolution Trust Corporation became one of the largest financial bailouts in American history before the 2008 financial crisis. The episode is frequently studied alongside the Volcker Disinflation's high interest rates as an example of how a sharp monetary tightening can destabilize an entire class of financial institution years after the policy itself has changed.