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These powers encouraged unscrupulous real estate developers and others who were unfamiliar with the banking business to acquire and then rapidly grow their S&Ls into insolvency.When the borrower and the lender are the same person, a conflict of interest develops.
Inept supervision and the permissive attitude of the FHLBB during the 1980s allowed badly managed and insolvent S&Ls to continue operating.
In particular, the FHLBB eliminated maximum limits on loan-to-value ratios for S&Ls in 1983.
That is, deposit insurance provided by the federal government tolerated the unsound financial structure of S&Ls for decades. Congress tried to rectify this problem in 1991 when it directed the FDIC to begin charging risk-sensitive deposit-insurance premiums.
However, because those who should pay the most would scream the loudest to Congress, the FDIC’s premium structure still does not charge the riskiest banks and S&Ls enough.
Instead, Congress chose to put off the eventual day of reckoning, which only compounded the problem.
Over half of these losses reflect the pure cost of delayed closures—compound interest on already incurred losses.
Federal deposit insurance, which was extended to S&Ls in 1934, was the root cause of the S&L crisis.
Deposit insurance was actuarially unsound from its inception, primarily because all S&Ls were charged the same premium rate regardless of how safe or risky they were.
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
All of these policies, however, greatly compounded the S&L problem and made its eventual resolution more difficult and much more expensive.Tags: Adult Dating, affair dating, sex dating