There was a big problem for the banks at around 1930's, when
the Great Depression
was at its full potential. The problem was
generated when the depositors withdrew all the money causing
the banks to run low in cash. Also, many accounts were closed
and borrowers couldn’t repay their loans. It was really
difficult for
the banks to perform their most important function (creation of
money). As a result, around 9,000 banks failed between 1930
and
1933.
http://www.eh.net/bookreviews/library/0028.shtml
The Congress created deposit insurances in order to protect
all the customer deposits. These insurances are called the
Federal Deposit Insurance Corporation (FDIC) and the Federal
Savings and Loan Insurance Corporation (FSLIC),
and thy were created in 1933 and 1934. Their main function was
to ensure that every depositor receives their money back even
if the bank fails.
What is the S&L Crisis?
S&L refers to savings and loan associations. During the
1970's
there was a high interest rate, and the banks had to do a lot of
things in order to atract more customers. During this period,
many loans at the savings and loan associations were classified
as low interest rate loans causing loss to these kind of banks
because they had long-term loans with low interest rates and
short-term deposits with high rates. This caused the S&L
Crisis.
Conclusion
As a group, we can conclude that searching
a theme as this one has been really hard and interesting at the same time
for each one of us because it helped
us understand the
world of money and its use in our society.
As classmates, we will never forget how hard
was to get
together and review our parts of the work. We made kinko's
in Palm Desert our work place every Friday
night, we met
there around ten times and we never got anything done until
the last week before our presentation,
but we made it at the end. We learned that communication between us was the essential part of the whole organization and it
what helped us to get done this job.
