The Savings & Loan Crisis unfolded across the 1980s and early 1990s, when more than 1,000 U.S. savings and loan institutions (S&Ls) failed.
S&Ls traditionally made long-term, fixed-rate mortgages funded by local deposits.
When inflation surged and interest rates spiked, S&Ls paid more to depositors than they earned on old low-rate mortgages.
Their business model collapsed, creating widespread losses.
Instead of shrinking, many S&Ls shifted into risky and speculative lending after deregulation loosened rules.
Mismanagement, fraud, and aggressive real estate bets worsened the crisis.
By the early 1990s, losses exceeded $150 billion and led to a major financial-sector bailout.

What Drove the Crisis

Interest-rate mismatch: S&Ls borrowed short-term (deposits) and lent long-term (fixed-rate mortgages); rising rates created massive negative spreads.
Deregulation without safeguards: Insolvent institutions gained broader lending powers and entered high-risk commercial and real estate lending.
Deposit insurance distortion: Government insurance protected deposits regardless of risk, encouraging speculative behavior and moral hazard.
Regulatory failure: Oversight was weak, underfunded, and slow to intervene, allowing losses to grow for years.

Investor Lessons

Mismatched balance sheets can hide severe risk that emerges when rates rise.
Short-term funding for long-term assets creates structural fragility.
Deregulation must be paired with capital discipline and strong supervision.
Government guarantees can distort incentives if not monitored.
Funding structure, asset quality, management behavior, and regulation are all critical to assessing financial institutions.
Solvency issues often develop quietly and become visible only when macro conditions tighten.

The Savings & Loan Crisis (1980s–1990s)