Savings and Loan Crisis
The US S&L crisis was a 1980s–early-1990s wave of thrift failures after rate shock, moral hazard, and regulatory forbearance — resolved by RTC at a large fiscal cost.
Definition
Thrifts had long fixed-rate mortgages funded by short deposits. Volcker rates made them insolvent on a mark-to-market. Deregulation let zombies gamble; deposit insurance paid the losses. FIRREA (1989) and the Resolution Trust Corporation cleaned up.
Why it matters
It is the textbook of duration mismatch + forbearance + a put. Every later ‘extend and pretend’ debate quotes it.
Case
Over 1,000 institutions failed. The fiscal cost was on the order of $120bn+ in 1990s dollars. Texas and the Southwest were the geographic core.
How to read it
If an insured intermediary is insolvent and still open, you are paying for a call option on a recovery that may not come.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- The S&L DebacleWhite · 1991 · OxfordStandard economic autopsy.