Video - Savings and Loan Crisis


Videos Saab 9-1 Savings and Loan Crisis



Savings and Loan Crisis

The following is a detailed summary of the major causes for losses that hurt the savings and loan business in the 1980s: Lack of net worth for many institutions as they entered the 1980s, and a wholly inadequate net worth regulation. Decline in the effectiveness of Regulation Q in preserving the spread between the cost of money and the rate of return on assets, basically stemming from inflation and the accompanying increase in market interest rates. Absence of an ability to vary the return on assets with increases in the rate of interest required to be paid for deposits. Increased competition on the deposit gathering and mortgage origination sides of the business, with a sudden burst of new technology making possible a whole new way of conducting financial institutions generally and the mortgage business specifically. Savings and Loans gained a wide range of new investment powers with the passage of the Depository Institutions Deregulation and Monetary Control Act and the Garn--St. Germain Depository Institutions Act. A number of states also passed legislation that similarly increased investment options. These introduced new risks and speculative opportunities which were difficult to administer. In many instances management lacked the ability or experience to evaluate them, or to administer large volumes of nonresidential construction loans. Elimination of regulations initially designed to prevent lending excesses and minimize failures. Regulatory relaxation permitted ...

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Duration: 94 minutes : 34 seconds
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