S & L Crisis of 1989 INTRODUCTION In the summer of 1989,

In the summer of 1989, both the Congress and the Bush Administration were struggling with the problem of developing an effective and an acceptable solution to the problem which has come to be known as the savings and loan crisis. Hundreds of savings and loan associations were either insolvent, or were in danger of becoming insolvent in the relatively near future (Dentzer, and Plattner, 1989). It was estimated that the savings and loan industry, as a whole, was "hemorrhaging at a rate of $10 million to $12 million a day" (Skidmore, 1989, C1).

Eventually, the Congress and the Administration compromised on a bailout plan for the industry, and created the Resolution Trust Corporation to administer it. As usual, where either the Reagan Administration or the Bush Administration is required to deal with a non national defense issue, rose colored predictions and under funding was the order of the day. The magnitude of the problem was purposefully downplayed, so that the funding package for the plan could fit reasonably comfortably within a Congress/Administration compromise federal budget.

Both the bailout plan and the Resolution Trust Corporation soon became croppers. The Bush Administration's appointee to head the Corporation quickly came under fire on charges of

1 2both incompetency and favoritism, and the woeful inadequacy of the estimates of the funding required for the plan soon became apparent. The Bush appointee was forced to re

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some blurring of the functions of the major players in the industry, as well as the presence of many new players. As an example, the activities of commercial banks and investmenttype institutions overlap to a greater extent than was true prior to regulatory revision. The distinction between commercial banks and thrift institutions had also been blurred. Thrift institutions are now permitted to engage in all retail banking activities, although not all thrifts availed themselves fully of such opportunities. Further, the narrowing (or, in some cases,the elimination) of interest rate ceilings between commercial banks and thrifts resulted in a restructuring of the activities of the two institution types (Klaman, and Rubison, 1987). The outcomes of governmental actions are not always as anticipated. Certainly some of the outcomes of governmental deregulation in banking and finance were not anticipated. The effects of deregulation in the banking and financial sector in the 1980s encompassed far more significant activities than a mere shifting of business between the players. Failures, and bank runs also surfaced subsequent to 1981, although 5regulatory revision could not be said to be the primary causal factor for

Category: Economics - S