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The Savings and Loan Crisis: Lessons From a Regulatory Failure Glenn Yago and James Barth, eds. May 2004 Publisher: Kluwer Academic Publishers ISBN: 1-4020-7871-4

Between 1980 and early 1995, more than 5,000 savings and loans, commercial banks and credit unions failed in the U.S. The cost of resolving this crisis exceeded $190 billion.

The Savings and Loan Crisis: Lessons From a Regulatory Failure looks back on this difficult period and explains what happened to America’s banking institutions.

In a series of essays written by a respected and diverse group of regulators, scholars and practitioners, the authors argue that the collapse of the savings and loan industry was caused by a confluence of adverse economic conditions and misguided regulatory actions.

The initial adverse developments in the savings and loan industry that were to lead to the crisis were caused primarily by the interaction of excessive regulatory constraints and a rapidly changing financial marketplace. Added to these initial problems were a series of regulatory actions and accounting gimmicks that turned an already difficult situation into a disastrous one for taxpayers.

Although the savings and loan crisis was an accident, it was an avoidable one. Most of the factors responsible for initiating and exacerbating the industry’s problems were preventable as is documented in this volume.

The savings and loan crisis taught us the important lesson that one must design banking regulations in such a manner as to allow institutions to adapt to changing competitive market forces. This basic message applies not just to the U.S. but also to every other country around the world.

"The savings and loan crisis is a textbook case of financial institutions breaking down through a unique combination of macroeconomic conditions, interest rate and tax policy shifts, structural changes in capital markets and financial institutions, and, ultimately, regulatory chokeholds and policy missteps that created a perfect financial policy storm," says Glenn Yago, Director of Capital Studies at the Milken Institute and co-editor of the book with James Barth, Senior Fellow at the Milken Institute and former chief economist of the Federal Home Loan Bank Board and the Office of Thrift Supervision.

The essays in this volume stem from a conference held by the Milken Institute in conjunction with the UCLA Anderson School of Business in 2002, Examination of S&Ls Roundtable, that brought together scholars on financial institutions to reflect upon the policy failures that resulted in the crisis.

The book is the fifth in the Milken Institute Series on Financial Innovation and Economic Growth, organized by Glenn Yago and James Barth. It is available at Kluwer Academic Publishers. (Note: This link takes you to a web site outside of milkeninstitute.org. To return, hit the back button on your web browser.)

Author comments:

• Lawrence White, a professor at New York University’s Stern School of Business and former member of the Federal Home Loan Bank Board: "The political process originally refused to face up to the difficulties of the S&L industry and of deposit insurance and allowed both sets of problems to fester for far too long. We have learned a lot since then about the important roles of capital and of prompt corrective action."
  
• George Kaufman, director of the Center for Financial and Policy Studies at the School of Business Administration at Loyola University Chicago and co-chair of the Shadow Financial Regulatory Committee: “With the benefit of 20 years of hindsight, the essays in this book analyze and evaluate the causes and regulatory and legislative cures applied to identify lessons that may be useful both in preventing such crises in the future and in resolving them more efficiently at lower societal costs if they do occur.”
  
• Edward Kane, a chaired professor at Boston College and first recipient of the Lifetime Achievement Award recently conferred by the Financial Intermediation Society: “A marvelous summary of layered incentive conflicts in corporate governance, government regulation and accounting that continue to bedevil us today.”
  

Chapters include:

• "What Have We Learned from the Thrift and Banking Crises of the 1980s?" by George Kaufman
  
• "The Savings and Loan Debacle: A Perspective From the Early 21st Century," by Lawrence White
  
• "Some Hope for the Future, After a Failed National Policy for Thrifts," by Arthur Leibold, Jr.
  
• "Regulatory Regimes and Markets: The Case of Savings and Loans," by Catherine England
  
• "The Savings and Loan Crisis: Unresolved Policy Issues," by R. Dan Brumbaugh, Jr. and Catherine J. Galley
  
• "Macroeconomic Sources of the U.S. Savings and Loan Crisis," by Michael Darby
  
• "What Lessons Might Crisis Countries in Asia and Latin America Have Learned from the Savings and Loan Mess?" by Edward Kane
  
• "The Lessons of U.S. Savings and Loan Institutions: An International Development Perspective," by Kevin Villani
  
• "The Lesson of Lincoln: Regulation and Narrative in the Savings and Loan Crisis," by Lawrence T. Nichols and James J. Nolan, II
  
• "The U.S. Savings and Loan Crisis in Hindsight: 20 Years Later," by James Barth, Susanne Trimbath and Glenn Yago
  
• "The Savings and Loan Crisis: Five Illustrative Case Studies," by Donald McCarthy
  
• "Summing Up: Do Savings and Loans Provide a Useful Perspective?" by Kenneth Thygerson
  
• "A Roundtable on the Savings and Loan Crisis"