US Savings and Loan Scandal,1985

US Savings and Loans institutions were local banks which made home loans and took deposits from retail investors, similar to building societies in the UK.

Under financial deregulation in the 1980s, they were allowed to engage in more complex, and often unwise, financial transactions, competing with the big commercial banks.

By 1985, many of these institutions were all but bankrupt, and a run began on S&L institutions in Ohio and Maryland.

The US government insured many of the individual deposits in the S&Ls, and therefore had a big financial liability when they collapsed.

It set up the Resolution Trust Company to take over and sell any S&L assets that it could, including repossessed homes, taking over the bankrupt institutions.

The cost of the bail-out eventually totalled about $150bn.

However, the crisis probably strengthened the bigger banks by weeding out their weaker rivals, and laid the groundwork for the wave of mergers and consolidations in the retail banking sector in the 1990s.

By Steve Schifferes
Economics reporter, BBC News

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