The 1980’s spelled the dark ages for Savings and Loan institutions (S&Ls). Failed institutions like Empire Savings and Lincoln Savings and Loan became symbols for lender fraud and misrepresentation. Charles Keating succumbed to the temptation of lender malfeasance when lured to the vulnerable, soft underbelly of S&L and Thrift institutions: deregulation.
An erosion of S&L regulatory monitoring paved the way for lenders' predatory practices of marketing high-risk loans. Furthermore, many S&L and Thrift managers gave out bad information on secured and unsecured loan products, trying to compete with the big boys: large mortgage banks. Both lender and customer fell prey to greed. Small S&Ls and Thrifts tempted by deregulated money, especially state run institutions, acted like boys with their hands in the cookie jar when no one was looking. Little monitoring existed since these small depository institutions were deregulated. The regulators arrived too late and all the cookies were gone.
The stolen cookies amounted to more than $75 billion passed on to the taxpayer. S&L and Thrift misconduct would severely taint the industry for the upcoming years.
In response to this financial depository debacle, the federal government founded the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. New regulatory and oversight agencies were formed to monitor and regulate new S&L and Thrift product practices. Newly established regulation agencies would now protect the consumer by ensuring S&L and Thrift practices maintain product integrity and quality.
New federal agencies took the place of old ones. FIRREA replaced the Federal Savings & Loan Insurance Corporation (FSLIC) with the Federal Deposit Insurance Corporation (FDIC), which became responsible for insuring new thrift institutions.
The FDIC created two funds to insure Thrifts and Banks: the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF), respectively.
FIRREA created the Federal Housing Finance Board (FHFB) and the Office of Thrift Supervision (OTS). Both of these agencies replaced the Federal Home Loan Bank Board (FHLBB). Also, the Resolution Trust Corporation (RTC) was created to manage and distribute assets of the failed S&Ls and Thrifts.
FIRREA is also involved with a grant program dealing with affordable housing to low-income families, and encourages minority participation in the establishment of new depository institutions.
The beginning of the collapse of S&Ls and Thrifts started in the 1980’s with burgeoning interest rates. Then in the mid 1980’s, small state S&Ls and Thrifts were deregulated so they could compete with larger S&Ls and banks. Little oversight ensued. The S&L and Thrift debacle left a sour taste in the mouths of many a taxpayer.
With new FIRREA oversight of depository institutions, once besmirched financial institutions are again on the rise, and Thrift institutions now account for almost $900 billion in assets. These new Thrifts are now marketing themselves as community-minded lending professionals for prospective homebuyers. Being local, the new thrifts advertise
themselves as an alternative to impersonal customer service, reflected by the big national banking chains. In any case, the small S&Ls and Thrifts face stiff competition in the future from new bank products, more regulation, and online technology.