FDIC Banking Review
The Cost of the Savings and Loan Crisis: Truth and Consequences
by Timothy Curry and Lynn Shibut*
It has been more than a decade since enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which began the taxpayers’ involvement in the cleanup of the savings and loan industry.1 Over time, misinformation about the cost of the crisis has been widespread; some published reports have placed the cost at less than $100 billion, and others as high as $500 billion.2 Now that the cleanup is nearly complete, we can answer the following questions about a debacle that has consumed the nation for years: l What was the total cost of the crisis? l How much of the total was borne by the U.S. taxpayer? l How much was borne by the thrift industry? l How do the actual costs compare with those predicted before and during the cleanup years? The thrift cleanup was Congress’s response to the greatest collapse of U.S. financial institutions since the 1930s. From 1986 to 1989, the Federal Savings and Loan Insurance Corporation (FSLIC), the insurer of the thrift industry, closed or otherwise resolved 296 institutions with total assets of $125 billion (table 1).3 An even more traumatic period followed, with the creation of the Resolution Trust Corporation (RTC) in 1989 and that agency’s resolution by mid-1995 of an additional 747 thrifts with total assets of $394 billion.4
The combined closings by both agencies of 1,043 institutions holding $519 billion in assets contributed to a massive restructuring of the number of firms in the industry. From January 1, 1986, through year-end 1995, the number of federally insured thrift institutions in the United States declined from 3,234 to 1,645, or by approximately 50 percent.5
* Timothy Curry is a financial economist and Lynn Shibut is Chief of the Financial Modeling Section in the FDIC’s Division of Research and Statistics. The authors thank the FDIC’s James Marino, Barry...