Saving & Loan Crisis_Group 3

8/19/2019 Saving & Loan Crisis_Group 3

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Savings & Loan Crisis

February 22,2016

Presented By: (Group!

"noop #u$ar S%ar$a(20!"nu' Pau (21!"poorva S%ar$a (22!"s%is% Sing% (2)!


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"genda

ntrodu*tion + S & L Crisis

Causes

Govern$ent esponse

esoution

Learning-s & Con*usion

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"genda


Causes

Govern$ent esponse

esoution


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.e/nition:

Saving and Loan Associations (thrift institutions)are deposit-taking institutions initially createdfor the purpose of taking in deposits fromprivate citizens and using them to make homemortgage loans.

Fun*tion:

Intermediation function begins ith taking in

deposits ! paying interest. A higher returnmust come from the lending in the form ofhome mortgages. "his function orks besthen interest rates are lo ! stable.


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10s# "he $rst %.S. S!L as founded in &'&

130s# &&' S!L*s+ more than &, million member+ million dollar of asset size+ ,, of all home

mortgages ! & of entire populationas member of these institutes.

13)0s41360s# /enerally stable interest rates ! successful

operation and groth of S!Ls.

1350-s# 0igh in1ation in the %.S. 23egulation 45

Late 1350s# S!L industry starts shoing $rst signs ofbuckling and becoming insolvent.

i$eine


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130# 6eregulation

1314132# 3ecession hits the %.S. economy

7id4130s# 0igher interest rates to thedepositors

Per*entage o8 S & L "sset in7ortgage


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135# "he 7SLI8+ hich as undercapitalized+goes bankrupt. "he 89:A as created to

recapitalize the 7SLI8+ but this failed.

133# 0ighest number of S!L failures. "hebailout costs ere high ! many closed bythe government.

1330431# 3ecession hits the %.S. economy.


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Year S&L

Failures

Year S&L

Failures

1980 11 1992 60

1981 28 1993 7

1982 76 1994 2

1983 51 1995 2

1984 24 1996 1

1985 60 1997 0

1986 59 1998 0

1987 60 1999 1

1988 190 2000 1

1989 327 2001 1

1990 214 2002 1

1991 146 Source: FDIC Web

Sie

"nnua .ata on S & L 8aiure


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.epositors

Govern$ent

S & L

"sso*iations

FSLC,C9B"

7arets

7a'or Payers


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"genda


Causes

Govern$ent esponse

esoution


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;%at %appened <

nsoven*y o8 Federa oan & Saving nsuran*eCorporation>

%e govern$ent baiout o8 t%e t%ri8ts to t%etune o8 ?12 biion in ta@payer doars & t%e

iAuidation o8 55 insovent S&Ls by t%e >S>govern$ent-s esoution rust Corporation>

ne o8 t%e argest S&L 8aiures Das t%at o8

Lin*on S&L, part o8 t%e #eating Five s*andaD%i*% e@posed t%e poiti*a *orruption t%atDas part o8 t%e S&L Crisis>

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Causes (*ontdH!

.epository nstitutions .ereguation and

7onetary Contro "*t (..7C"! o8 130 andt%e .epository nstitutions (Garn+St> Ger$ain!"*t o8 132>

n 133, Congress started no*ing doDn t%ebarriers separating *o$$er*ia bans 8ro$S&Ls>

;%ie $any o8 t%e argest S&Ls are noD

oDned by ban %oding *o$panies, tDoindependent S&Ls 4 ;as%ington 7utua Banand ;ord Savings Ban 4 ea*% %ad $ore t%an?100 biion o8 assets>

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"genda


Causes

Govern$ent esponse

esoution


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Govern$ent esponse

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ICo$petitive 9Auaity in Baning "*tJ o8 135

provided FSLC to borroD ?10> biion toresove insovent S&Ls & *ontinued to pursuereguatory 8orbearan*e>

n 13 FSLC resoved 222 S&Ls (asset o8 ?116biion!>

ransa*tions Dere eKe*ted Dit% $ini$a *as%outays & $a@i$u$ use o8 notes, guarantees,

& ta@ advantages, D%i*% $ade t%esetransa*tions $ore *osty>

.espite t%ese resoutions, at year4end 13t%ere Dere sti 2)0 S&Ls, Dit% ?0> biion inassets, t%at Dere insovent based on


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"genda


Causes

Govern$ent esponse

esoution


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esoution

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Finan*ia nstitutions e8or$, e*overy, &9n8or*e$ent "*t (F9"!, Das signed into aDon "ugust 3, 133>

9i$inated Federa o$e Loan Ban Board &t%e FSLC and en%an*ed en8or*e$ent poDers o8t%ri8t reguators>

eguatory roe o8 t%e Federa o$e Loan BanBoard Das reegated to t%e M*e o8 %ri8tSupervision (S!>

F.C Dit% reguatory responsibiities o8 t%eFSLC be*a$e t%e soe ad$inistrator o8 t%e8edera deposit insuran*e syste$ Dit% tDoseparate insuran*e 8unds:

Ban nsuran*e Fund (BF! &


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"genda


Causes

Govern$ent esponse

esoution


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Learnings 8ro$ S&L *risis

%e da$aging eKe*ts o8 %ig% inOation &

interest rates on /nan*ia inter$ediaries, anobvious argu$ent 8or *ontroing do$esti*inOation>

%e negative eKe*ts o8 Aui* dereguation and

a* o8 oversig%t as De as t%e $ora4%aEardand adverse4see*tion probe$s *aused bydeposit insuran*e>

La* o8 depositor oversig%t *aused by

insuran*e *annot be ignored eit%er> .epositinsuran*e s%oud be estabis%ed so t%at it$ini$iEes t%ese probe$s & yet provides t%estabiity & prote*tion needed by s$adepositors>

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%an ou

Saving & Loan Crisis_Group 3

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Transcript of Saving & Loan Crisis_Group 3