What caused the S&L scandal?
The savings and loan (S&L) crisis of the 1980s and early 1990s was caused by a toxic combination of premature federal deregulation, high inflation, volatile interest rates, and widespread speculative lending, combined with inadequate regulatory oversight. When interest rates spiked, S&Ls were stuck paying high rates to depositors while earning low returns on old fixed-rate mortgages, pushing hundreds into insolvency. Congress deregulated the industry to help them recover, allowing thrifts to invest in high-risk commercial real estate and speculative ventures. Fraud, insider abuse, and lack of risk management led to massive institutional failures that ultimately required a taxpayer-funded federal bailout costing over one hundred billion dollars.