A Savings Bank and Crisis - Case Study Example

The major problems which would the financial institutions in the community following the savings and loans crisis was the aspect of insolvency. Most of the institutions would be operating losses which was definitely bad for business. Most of the organizations would close door to the public. Some of the institutions would end up under receiverships. It is undeniable that the financial institutions could not operate profitably. They were not able to raise adequate capital from their operations. It is sad that more than half of the savings and loan institution in the United States of America would end up closing (Watts, & Zuo, 2016). The move would not only hurt the institutions but the global economy as a whole. The impact of the crisis would spread to other continents such as Europe and would be a causative factor the great economic depression in the 1980s. It is thus undeniable that the savings and loans crisis would be a challenge to the financial institutions and the global economy as a whole.

Efforts by the Federal Regulators and congress to protect depositors

It is apparent that the savings and loan crisis would require measures from the Federal Regulators and congress so as to protect the depositors and the financial institutions. The congress was essential in making legislations which would aim at protecting the depositors and the financial institutions amid the crisis. Some of the legislations would aim lessening the restrictions necessary for the financial institutions to operate (Watts, & Zuo, 2016). The Depository Institutions Deregulation and Monetary Control Act of the 1980 was passed by the congress which had the primary objective of protecting the savings and loan institutions in the community from the interest rates mismatch. The Act would allow the savings and loan institutions to offer credit cards and adjusted the loan-loss requirements. It would further allow the institutions to offer negotiable order of withdrawal accounts. It would further begin the process of phasing out regulations which defined the financial institutions which were to pay on deposits. It is evident that the act in conjunction with several other acts passed by the congress had the primary goal of protecting the interests of the depositors and the financial institutions during the savings and loan crisis. The successful implementation of the Acts would require monitoring and reporting by the Federal Regulators (Watts, & Zuo, 2016). The regulators played a fundamental role in designing mechanism which could possibly lead to a recovery of the economy. It merits noting that the regulators would push for various monetary and fiscal policies which had the primary objective of protecting the depositors and the financial institutions. The policies further aimed at bringing the crisis to manageable levels and possibly be able to attain a positive economic growth and development.

Lessons learned

There are a number of lessons which one could learn from the financial disaster. Some of the lessons include the aspect that fraud is a great risk to the financial wellbeing of the economy. It is apparent that a number of scams worsened the financial crisis. It is necessary to ensure that there are adequate mechanisms in the community to allow for the detection of fraud. It is necessarily to offer fraud the necessary weight it deserves since there was a tendency to underestimate its ramifications. It is essential to note that it would be prudent to promote mechanisms which ensure that the managers in the community are able to act in the best interest of the shareholders (Wells, 2016). It is clear from the crisis that managers may not bear the full cost of the effects of their actions in cases where there have conflicting interests with the shareholders. In such situations it may be necessary to place a system of checks and accountability on the actions and decisions of the managers.

Conclusion

The savings and loan institutions play an essential role in the economy. The savings and loan crisis which would take place during the 1980s had great effects on the economy. However, the crisis presents a number of lessons which could influence the future of the financial service industry in the attempt to avoid a crisis of similar magnitude.