Abstract: Crises in the Making: The Regulation and Deregulation of the U.S. S&L Industry

Jill S. Huerta


In analyzing the savings and loan collapse of the 1980s, this paper argues that a tendency to focus on high-profile criminal cases has distracted us from the most important aspects of this story, namely the failure of regulation. The New Deal financial regulatory structure helped savings and loans become the largest writers of home mortgages in the United States by the 1950s. However, by the 1970s, changes in the global economy and corresponding adjustments to U.S. financial markets had made it impossible for savings and loan to succeed under the old framework. The need for regulatory adjustment was dire, but the difficulty in securing compromises from such a large number of interested parties meant this process would be long and flawed. Both the Carter and Reagan administrations saw deregulation as the cure, but it was no panacea. To the contrary, the absence of regulation encouraged risky investments and gambling in addition to fraud. Surprisingly, the savings and loan collapse did not discourage supporters of deregulation. Instead, deregulation picked up momentum and spread until most of the financial regulation put in place by the New Deal had been undone, setting the stage for the financial crisis of 2008.