Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Skip to content
Home » What caused the savings and loan crisis?

What caused the savings and loan crisis?

The savings and loan (S&L) crisis of the 1980s and early 1990s was a significant financial upheaval in the United States. Its origins can be traced back to a combination of excessive lending, speculation, and risk-taking within the S&L industry. This reckless behavior was largely fueled by the environment of deregulation and the safety net provided by taxpayer-funded bailout guarantees.

In the years leading up to the crisis, many S&Ls engaged in risky investments and unsound lending practices due to the belief that they would be rescued by the government if they failed. This phenomenon, known as moral hazard, encouraged irresponsible behavior and lax oversight within the industry. Additionally, some S&Ls were plagued by fraud, with insiders orchestrating fraudulent transactions for personal gain. Shockingly, some institutions were aware of these illicit activities but chose to turn a blind eye, further exacerbating the crisis.

As a result of these systemic failures and institutional misconduct, the S&L crisis led to significant financial losses for both taxpayers and investors. The aftermath saw the collapse of numerous S&Ls, causing widespread economic disruption and job losses. The crisis also prompted sweeping reforms within the financial sector aimed at preventing similar disasters in the future. However, its lingering effects serve as a stark reminder of the dangers posed by unchecked speculation and the importance of effective regulation.

(Response: The savings and loan crisis was primarily caused by a combination of excessive lending, speculation, and risk-taking, driven by deregulation and taxpayer bailout guarantees, along with instances of fraud within the industry.)