Savings and loan crisis

The Savings -and -loan crisis (english Savings and Loan Crisis ) was a banking crisis in the 1980s in the United States.

About 1,000 Savings and Loans in the U.S. collapsed during the crisis. The total damage amounted to over 150 billion U.S. dollars, of which were applied to the 125 billion by the public sector. The damage thereby contributed to the large budget deficits of the U.S. in the 1980s and the recession of the early in the 90s.


Since the beginning of the 19th century consisted in the USA Credit Unions ( english Savings and loan associations, in short: S & Ls). As most municipal companies they were subject to the early 1970s, consistent regulatory requirements. This went so far that even the maximum amount of interest on investments was prescribed.

After the inflation rate and hence the interest rates rose significantly in the 70s, lost savings extensive deposits in money market funds, which promised substantially higher rates.

On the other hand, the savings banks had launched comprehensive fixed rate loans for mortgages, which led to losses due to rising interest rates. The profits and equity of the savings eroded.

The roots of the strict regulation lay in the era of the Great Depression. Given the former banking crisis savings were only a few business allowed. Also, the two-tier banking system contributed to a limitation of business opportunities.

At the end of the reign of President Jimmy Carter, the limitations were lifted gradually. In addition, the liability of the U.S. deposit insurance ( Federal Deposit Insurance Corporation, FDIC ) was raised from 70 percent to 100 percent of the credit. When Ronald Reagan in 1981 and resumed his duties as President, wrote 3,300 of 3,800 savings banks in the red.

1982 was therefore by the Congress of yarn -St. Germain Depository Institutions Act enacted a federal law, which the savings banks would qualify again to be competitive. The regulation has been relaxed. Savings banks were awarded installment loans and corporate loans and credit cards to spend and were exempt from the restrictions in interest rates. Furthermore, they were allowed to be active in the real estate business. Only the investment banking they were denied.

The crisis

Due to the deregulation of the savings banks expanded at a rapid pace. Loans for real estate loans increased significantly. Since at the same time pushed up real estate prices also fell risk costs. Trusting the government guarantees the acquisition of the necessary funds to refinance facility was no longer a problem. These guarantees also increased the incentive to undertake riskier activities: This results in higher profits for the savings banks were possible, but the losses were limited by the FDIC (see: moral hazard).

In addition to lending the savings banks operated high-risk corporate finance. They were among the most important investors in so-called junk bonds, ie, high-risk corporate bonds. Conversely sold Sparkassen large parts of their financing through asset securitization.

With the decline of inflation ( and interest rates ) and the drop in home prices in the mid 80's the business model of savings banks collapsed ( problem of maturity transformation ). The losses on real estate loans and speculation losses met the savings banks hard. Through the securitization of loans, the savings banks benefited from the fall in interest rates, however, hardly. On the contrary, refinancing options were hampered by the low interest rates.

Added to this was, in some cases, that bank executives and managers had made ​​financial transactions fraudulently.

First, it was the policy FHL banks and FDIC not to allow bankruptcies and avoid a banking crisis through subsidies. This policy does not has persisted. In March 1985, had the Home State Savings Bank of Cincinnati, Ohio bankruptcy login. As a result, an increasing number of savings banks collapsed, investors were compensated for the most part by the FDIC.

Legislative reaction

The Financial Institutions Reform Recovery and Enforcement Act of 1989 ( FIRREA ), Congress regulated the handling of bankrupt savings banks. One of the most important parts of this law was the creation of the Resolution Trust Corporation (RTC). These were to state institutions that were created for a limited time to organize according to the law " the maintenance, restoration and reform of financial institutions " (see bad bank ). Thus they took over " lazy " loans that were not reliably served by the creditors. After seven years, the crisis was largely overcome and the RTC was in the state FDIC ( Federal Deposit Insurance Corporation ) on.

The state granted the banks a loan of 400 billion U.S. dollars, of which 124 billion were ultimately not repaid. The taxpayer was charged to 1999 with a total of about 124 billion U.S. dollars.