S & Ls Deregulation And Currency Control Act Of 1980

S&Ls originates from the goal of pursuing homeownership. These institutions were organized by groups of people who wished to buy their own homes but didn’t have sufficient savings to purchase them. In the early 1800s, banks did not lend money for residential mortgages. The members of the group would pool their savings and lend them back to a few of the members to finance their home purchases. As the loans were repaid, funds could then be lent to other members. S&Ls, sometimes called thrifts, were generally smaller than banks, in number and in the assets under their control. But they were nevertheless a important way to go for the US mortgage market. In 1980, there were almost 4,000 thrifts with total assets of $600 billion, of which about

Policymakers responded by passing the Depository Institutions Deregulation and Monetary Control Act of 1980. But federal regulators lacked sufficient resources to deal with losses that S&Ls were suffering. So instead they took steps to deregulate the industry in the hope that it could grow out of its problems. The industry’s problems, though, grew even more severe. Ultimately, taxpayers were called upon to provide a bailout, and Congress was forced to act with significant reform legislation as the 1980s came to a close. In 1982, the Garn-St. Germain Depository Institutions Act was passed, which allowed S&Ls to raise interest rates on savings deposits. For banks, the loss to the FDIC and thus to other solvent banks was about $40 billion. For S & Ls, the loss was near $200 billion, some $150 billion of which was beyond the resources of the FSLIC and was therefore charged to U.S. taxpayers. S&L bank failures cost the FSLIC $20 billion, which bankrupted it. In addition, more than 500 banks were insured by state-run funds. Their failures cost at least $185 million, thus destroying forever the idea of state-run bank insurance funds. In addition, the banks were no longer restricted to mortgages, but were allowed to make commercial and consumer loans.

Between 1982 and 1985, these assets increased 56%. In Texas, forty S&Ls tripled in size, some growing 100% each year. By 1983, 35% of the country's S&Ls weren't profitable, and 9% were technically bankrupt. As banks went under, the state and Federal insurance began to run out of the money needed to refund depositors. However, many S&Ls kept remained open, continued making bad loans, and the losses kept mounting. Five U.S. Senators, known as the Keating Five, were investigated by the Senate Ethics Committee for improper conduct. They had accepted $1.5 million in campaign contributions from Charles Keating, head of the Lincoln Savings and Loan Association. They also put pressure on the Federal Home Loan Banking Board, the agency responsible for investigating possible criminal activities at Lincoln, to overlook possibly suspicious activities. By 1989, Congress and the President George H.W. Bush knew they needed to bail out the industry. They agreed on a taxpayer-financed bailout measure known as the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). It provided $50 billion to