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The Savings and Loan Crisis

The Savings and Loan Crisis - The Savings and Loan Crisis...

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The Savings and Loan Crisis From Last Time 30% of total deposits are not insured; that represents 1% of depositors. The FDIC is a government agency. The FDIC chooses its course of action after evaluating whether a deposit payoff or a purchase and assumption transaction is cheaper. Under a purchase and assumption method, someone buys the failed bank's assets and assumes responsibility for its liabilities. The difference between its assets and liabilities is covered by a cash transfer from the FDIC. The idea behind reducing bank competition, to try to come up with a nice rationale for it, might have been to protect bank profits so that they do not have to take on too much risk. Bank Failures during the Great Depression Some 8000 banks with $5 billion of deposits became insolvent in 1930-1933. An agricultural depression led to a wave a bank failures throughout the Mid West. Panic then spread to other areas. On March 4, 1933, President Roosevelt invoked the Trading with the Enemy Act of 1917 to close all banks in the U.S.
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