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[NOTE: This chronology and bibliography is provided solely
for informational purposes. The inclusion or exclusion of a source constitutes
neither an endorsement nor a rejection by the FDIC of the opinions expressed in
that source.]
General Books and Articles
Causes of the S&L Crisis
Charles Keating and Lincoln
Savings and Loan
Criminal Activity Associated with S&L Failures
Depository Institutions Deregulation and Monetary Control
Act of 1980
Deregulation of the S&Ls
Financial Institutions Reform Recovery and Enforcement Act
(FIRREA)
Garn - St Germain Depository Institutions Act of 1982
Interest Rate Vulnerability
Southwest Plan
State Deposit Insurance Funds - Ohio
and Maryland
Taxation and Accounting bibliography
A basic bibliography to provide an overview of the S&L
Crisis.
Background materials for understanding what led to the
S&L Crisis.
Details on one of the costliest S&L failures that
involved 5 U.S.
Senators.
The goods on specific criminal investigations of S&L
owners and directors.
Details on the 1980 law (DIDMCA) that eased the distinctions
among savings institutions.
Working papers and analysis covering the deregulation of the
S&L industry that led to the crisis.
The law enacted in August, 1989, to bail out the S&L
crisis and create the Resolution Trust Corporation.
Analyses of the 1982 law that allowed S&L's to diversify
their activities with the view of increasing profits.
Bibliography for understanding S&L interest rates, and
S&L vulnerability during this time period.
The plan to consolidate and package insolvent Texas S&Ls
and sell them to the highest bidder.
S&L failures in Ohio
and Maryland and the end of the
State Deposit Insurance Funds/
Understanding the tax and accounting rules for S&L's
1966-1979
Market interest rates fluctuate with increasing intensity
and S&Ls experience difficulty with each interest rate rise. Interest rate
ceilings prevent S&Ls from paying competitive interest rates on deposits.
Thus, every time the market interest rates rise, substantial amounts of funds
are withdrawn by consumers for placement in instruments with higher rates of
return. This process of deposit withdrawal ("disintermediation") and
the subsequent deposit influx when rates rise ("reintermediation") leaves
S&Ls highly vulnerable. Concurrently, money market funds become a source of
competition for S&L deposits. S&Ls are additionally restricted by not
being allowed to enter into business other than accepting deposits and granting
home mortgage loans.
1967--State of Texas
approves major liberalization of S&L powers. Property development loans of
up to 50% of net worth are allowed. 1972--Hunt Commission recommendations would
have created federal savings banks to replace S&Ls. The banks would have
had additional authority to make commercial loans and invest in commercial
paper.
1973--FINE Study would have granted same powers for S&Ls
as for banks, including checking accounts. Also recommends consolidation of the
regulators. Interest rate insurance was recommended if S&Ls are to remain
primarily involved in housing finance.
1978--Financial Institutions Regulatory and Interest Rate
Control Act of 1978 enacted. Weak version of previous recommendations. Allows
S&Ls to invest up 5% of assets in each of land development, construction,
and education loans.
1979--Doubling of oil prices. Inflation moves into double
digits for second time in five years.
1980-1982 Statutory
and regulatory changes give the S&L industry new powers in the hopes of
their entering new areas of business and subsequently returning to
profitability. For the first time, the government approves measures intended to
increase S&L profits as opposed to promoting housing and homeownership.
March, 1980--Depository Institutions Deregulation and
Monetary Control Act (DIDMCA) enacted. The law is a Carter Administration
initiative aimed at eliminating many of the distinctions among different types
of depository institutions and ultimately removing interest rate ceiling on
deposit accounts. Authority for federal S&Ls to make ADC
(acquisition, development, construction) loans is expanded. Deposit insurance
limit raised to $100,000 from $40,000. This last provision is added without
debate. November, 1980--Federal Home Loan Bank Board reduces net worth
requirement for insured S&Ls from 5 to 4 percent of total deposits. Bank
Board also removes limits on the amounts of brokered deposits an S&L can
hold.
August, 1981--Tax Reform Act of 1981 enacted. Provides
powerful tax incentives for real-estate investment by individuals. This
legislation helps create a "boom" in real estate and contributes to
over-building.
September, 1981--Federal Home Loan Bank Board permits
troubled S&Ls to issue "income capital certificates" that are
purchased by FSLIC and included as capital. Rather than showing that an
institution is insolvent, the certificates make it appear solvent.
1982-1985 Reductions
in the Bank Board's regulatory and supervisory staff. In 1983, a starting
S&L examiner is paid $14,000 a year. The average examiner has only two
years on the job. Examiner salaries are paid through OMB, not the Bank Board.
During this period of supervisory and examination retraction, industry growth
increases. Industry assets increase by 56% between 1982 and 1985. 40 Texas
S&Ls triple in size between 1982 and 1986; many of them grow by 100% each
year. California S&Ls follow a similar pattern.
January, 1982--Federal Home Loan Bank Board reduces net
worth requirement for insured S&Ls from 4 to 3 percent of total deposits.
Additionally, S&Ls are allowed to meet the low net worth standard not in
terms of generally accepted accounting principles (GAAP), but of even more
liberal regulatory accounting principles (RAP). April, 1982--Bank Board
eliminates restrictions on minimum numbers of S&L stock holders.
Previously, it required at least 400 stock holders of which at least 125 had to
be from "local community", with no individual owning more than 10% of
stock and no "controlling group" more than 25%. Bank Board's new
ownership regulation would allow a single owner. Purchases of S&Ls were
made easier by allowing buyers to put up land and other real estate, as opposed
to cash.
December, 1982--Garn - St Germain Depository Institutions
Act of 1982 enacted. This Reagan Administration initiative is designed to
complete the process of giving expanded powers to federally chartered S&Ls
and enables them to diversify their activities with the view of increasing
profits. Major provisions include: elimination of deposit interest rate
ceilings; elimination of the previous statutory limit on loan to value ratio;
and expansion of the asset powers of federal S&Ls by permitting up to 40%
of assets in commercial mortgages, up to 30% of assets in consumer loans, up to
10% of assets in commercial loans, and up to 10% of assets in commercial
leases.
December, 1982--In response to the massive defections of
state chartered S&Ls to the federal system, Nolan Bill passes in California.
Allows California-chartered S&Ls to invest 100% of deposits in any kind of
venture. Similar plans adopted in Texas
and Florida.
1983--Lower market interest rates return many S&Ls to
health. 35% of institutions, however, still sustain losses. 9% of all S&Ls
(representing 10% of industry assets) are insolvent by GAAP standards.
March, 1983--Edwin Gray becomes Chairman of the Federal Home
Loan Bank Board. Beginning in 1984 and continuing throughout his tenure,
regulatory and supervisory measures passed by the Bank Board begin the
reversing of deregulation.
November, 1983--Bank Board raises net worth requirement for
newly chartered S&Ls to 7%.
March, 1984--Failure of Empire Savings of Mesquite,
TX. "Land flips" and other
criminal activities are a pattern at Empire. This failure would eventually cost
the taxpayers approximately $300 million.
April, 1984--Bank Board moves jointly with the FDIC to
attempt to eliminate deposit insurance for brokered deposits. Federal court
rejects this attempt in mid-1984 as overstepping statutory limits.
July, 1984--Bank Board requires S&L management to adopt
policies and procedures for managing interest rate risk.
January, 1985--Bank Board limits the amount of brokered
deposits to 5% of deposits at FSLIC insured institutions failing to meet their
net worth requirements. Bank Board also limits direct investment (equity
securities, real estate, service corporations, and operating subsidiaries) to
the greater of 10% of assets or twice the S&L's net worth, provided the
institution meets regulatory net worth.
March, 1985--Ohio
bank holiday. Anticipated failure of Home State Savings Bank of Cincinnati,
OH and possible depletion of Ohio
state deposit insurance fund cause Governor Celeste to close Ohio S&Ls.
Eventually, those that can qualify for federal deposit insurance are allowed to
reopen.
May, 1985--S&L failures in Maryland
eventually cause loss to state deposit insurance fund and Maryland
taxpayers of $185 million. Ohio
and Maryland S&L failures helped kill state deposit insurance funds.
July, 1985--Chairman Gray begins transfer of federal
examiners to the twelve regional Federal Home Loan Banks so that they are no
longer overseen by OMB and their salaries are paid directly by the Bank Board
system.
August, 1985--Only $4.6 billion in FSLIC insurance fund.
Chairman Gray tries to gain support for recapitalizing FSLIC on Capitol Hill.
In 1986, GAO estimates the loss to the insurance fund to be around $20 billion.
December, 1985--Bank Board allows S&L examiners to
"classify" questionable loans and other assets for the purpose of
requiring loan loss reserves.
1986-1989
Compounding of losses as insolvent institutions are allowed to remain
open and grow, allowing ever increasing losses to accumulate.
August, 1986--Bank Board raises net worth standard gradually
to 6% with up to 2% points offset for reduced interest rate-risk. 1987--Losses
at Texas S&Ls comprise more than one-half of all S&L losses nationwide,
and of the 20 largest losses, 14 are in Texas.
Texas economy in major recession:
crude oil prices fall by nearly 50%, office vacancy is over 30%, and real
estate prices collapse.
January, 1987--GAO declares FSLIC fund insolvent by at least
$3.8 billion. Recapitalization has stalled on Capitol Hill until now by claims
of powerful S&L lobbyists that Bank Board regulations are too harsh and
arbitrary.
February, 1987--Bank Board requires prior supervisory
approval for S&Ls making direct investment in excess of 2.5 times their
tangible capital.
April, 1987--Edwin Gray ends his term as chairman of Federal
Home Loan Bank Board in June. Before his departure, he is summoned to the
office of Sen. Dennis DeConcini. DeConcini, with four other Senators (John
McCain, Alan Cranston, John Glenn, and Donald Riegle) question Gray about the
appropriateness of Bank Board investigations into Charles Keating's Lincoln
Savings and Loan. All five senators, who have received campaign contributions
from Keating, would become known as the "Keating Five". The subsequent
Lincoln failure is estimated to
have cost the taxpayers over $2 billion.
May, 1987--Bank Board begins phasing out the remains of the
liberal RAP accounting standards. S&Ls must conform to GAAP accounting
standards, as banks do. Effective date of this rule postponed by new Chairman
of the Federal Home Loan Bank Board, M. Danny Wall, to 1/1/1989.
August, 1987--Competitive Equality Banking Act of 1987
enacted. The Act authorizes $10.8 billion recapitalization of the FSLIC with
only $3.75 billion authorized in any 12-month period. Also contains forbearance
measures designed to postpone or prevent S&L closures.
February, 1988--Bank Board introduces the "Southwest
Plan" to consolidate and package insolvent Texas S&Ls and sell them to
the highest bidder. The strategy is to resolve insolvencies quickly while
conserving scarce cash for FSLIC. The Bank Board uses a number of strategies to
pay for the difference between assets and liabilities of the failed
institutions: FSLIC notes, tax incentives, and income, capital value and yield
guarantees. The Bank Board disposes of 205 S&Ls through the Southwest Plan
with assets of $101 billion.
November, 1988--George Bush elected President. S&L
problem not part of election debate.
1989--President Bush unveils S&L bailout plan in
February. In August, Financial Institutions Reform Recovery and Enforcement Act
(FIRREA). FIRREA abolishes the Federal Home Loan Bank Board and FSLIC, switches
S&L regulation to newly created Office of Thrift Supervision. Deposit
insurance function shifted to the FDIC. A new entity, the Resolution Trust
Corporation is created to resolve the insolvent S&Ls.
Other major provisions of FIRREA include: $50 billion of new
borrowing authority, with most financed from general revenues and the industry;
meaningful net worth requirements and regulation by the OTS and FDIC;
allocation funds to the Justice Department to help finance prosecution of
S&L crimes. Additional bank crime legislation the next year (i.e., the
Crime Control Act of 1990) mandates a study by the National Commission on
Financial Institution Reform, Recovery and Enforcement to uncover the causes of
the S&L crisis, and come up with recommendations to prevent any repetition.
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