The end of the 1980s decade was marred by the financial collapse of many savings and loan institutions. Current estimates of federal expenditures necessary to bail out the savings and loan industry from its financial debacle generally exceed $100 billion and some estimates range as high as $300 billion [Adams, 1990, p. 17; Pilzer, 1989, p. 233]. When interest costs on 30 to 40 year debt used to finance the federal bailout are included, cost estimates rise steeply to between $500 billion and $1 trillion [Carlton, 1992]. The "true" cost of the bailout will not be known for years to come, until all of the failing institutions have been shut down, merged, and sold off: until the Resolution Trust Corporation liquidates its holdings; and until all of the tax breaks and special portfolio performance guarantees granted to acquiring institutions have expired. Meanwhile, the American public is still asking: how the fiasco came about; who should be blamed for it; and how the clean up should be financed.
These are questions of particular concern or accountants for the following reason. While the responsibility for the widespread failure in the industry has not yet been fully determined, the role of the public accounting profession as well as the accounting standards, principles, procedures, and rules for savings and loan financial reporting have been called into question. Auditors of failed savings and loans have been shouldering part of the blame for the fiasco and some of the financial responsibility for the clean up, as a result of various lawsuits by federal agencies.(1) In addition, auditors have been subjected to various class action lawsuits brought by investors in failed savings and loans.(2) These lawsuits, whether justified or not, reflect a myopic perspective of how the debacle occurred. The thrift debacle was not simply the result of audit irregularities, Federal Home Loan Bank Board forbearance in closing troubled institutions, or fraud and mismanagement by thrift industry executives. Although each of these factors contributed substantially to the crisis, the problem was also Fundamentally rooted in the historical regulation of the industry.
This paper discusses, from a historical perspective, the regulatory environment of the savings and loan industry. Examining this regulatory history helps in understanding the current problems and crises of savings and loans as well as the situation in which the accounting profession now finds itself. The paper illustrates how changes in regulations and conflicting regulatory intentions laid the framework or the savings and loan debacle. Finally, this paper calls for greater coordination of Congressional goals for savings and loans, and the financial services industry, as the only way to achieve a lasting resolution to thrift industry problems. The remainder of this paper is organized as follows: The Early Years; Post Depression Years Through the 1960s; The 1970s: Disintermediation and Consumerism; The 1980s: Deregulation, Expansion, Crisis, Re-regulation; and What will the 1990s Bring?
THE EARLY YEARS
The first savings and loan institution was organized in 1831. Its primary purpose was to finance home ownership for association members. At this time, commercial banks were not filling this need because they perceived their role as financing the capitalization of industry [Ewalt, 1962, p. 372]. With the growing industrialization of the nation and the need for housing for urban residents, savings and loans spread across the country to serve savers and home mortgage borrowers. The spread of the thrift industry spurred a tremendous growth in residential construction across the nation. This construction boom became a leading factor in the prosperity of the 1920s [Keith, 1973].
Throughout this developmental period from 1831 into the 1920s, the institutions were chartered by states and were regulated by laws which varied greatly between states. Many states had no requirement for the establishment of reserves against losses on loans; consequently, some institutions paid out essentially all profits in dividends to shareholders. …