Research Paper on "Performance of Credit Unions Versus Savings & Loans"

Research Paper 3 pages (1162 words) Sources: 3

[EXCERPT] . . . .

Ultimately, the RTC lasted until the end of 1995, resolved 747 such entities and nearly $400 billion in assets (Investopedia, 2016).

Legally, the RTC had to be created by law, have its powers defined and extended by law, and it was dissolved by law as well. This means that Congress had to become involved in the crisis, and this was related to the size of the crisis, which was the largest mass failure of financial institutions since the 1930s (Investopedia, 2016).

Among the legal and regulatory ramifications was that the RTC restored the industry's insurance fund, which was unable to cope with the failures, and to alter the way that the industry was regulated. The federal government had sought twice prior to intervene in the crisis, but those attempts had failure, so it built the RTC on the regulatory framework of the FDIC. This provided a set of best practices for governance of the industry that helped the RTC to more successfully manage the S&L crisis. The FDIC, for example, administered the new insurance fund that was created, after the Financial Institutions Reform, Recovery and Enforcement Act abolished the industry's old insurance regime (Davison, 2005).

Ethically, the new measures to manage the crisis came about because the failures were affecting the overall health of the financial industry in the U.S. Normally, government does not intercede on an individual business, but in this case there were hundreds, with hundreds of billions of dollars of assets in question. Public confidence in the savings & loan industry, and to an extent the government's ability to ensure that safety of the financial deposit system, was being undermined. Thus, the government sought to restore public confidence in the system by bringing about an end to the crisis. This was deemed more ethically positive than the ramifications of such action, namely the famous "too big to fail" concept that arose from this crisis. Too big to fail is the concept of moral hazard that affects how the ethics of the RTC should be viewed. Allowing businesses to fail was deemed not only to be damaging to the businesses, their employees and their depositors, but to the economy as a whole, should consumer confidence be damaged severely. The hazard is that many financial institutions were incentivized to take risks under the theory that government would bail them out. The S&L industry as a whole was essentially bailed out with the creation of the new insurance regime and increased level of federal oversight, illustrating the moral hazard and the ethical trade-off that government needed to make at the time. The concept is now applied to much larger institutions, increasing the moral hazard to a level much greater than would have been conceived at the time the S&L industry was being rescued (Labonte, 2015).

References

Davison, L. (2005). Politics and policy: The creation of the Resolution Trust Corporation. Federal Deposit Insurance Corporation. Retrieved February 16, 2016 from https://www.fdic.gov/bank/analytical/banking/2005jul/article2.pdf

Investopedia (2016). Savings & loan crisis. Investopedia. Retrieved February 16, 2016 from http://www.investopedia.com/terms/s/sl-crisis.asp

Labonte, M. (2015). Systemically important or "too big to fail" financial institutions. Congressional Research Service. Retrieved February 16, 2016 from https://www.fas.org/sgp/crs/misc/R42150.pdf

Wilcox, J. (2005). Credit union failures and insurance fund losses: 1971-2004. Federal Reserve Bank of San Francisco. Retrieved February 16, 2016 from http://www.frbsf.org/economic-research/publications/economic-letter/2005/august/credit-union-failures-and-insurance-fund-losses-1971-2004/ READ MORE

How to Reference "Performance of Credit Unions Versus Savings & Loans" Research Paper in a Bibliography

Related Research Papers:

Role of Land Settlement Cooperative in the Kingdom of Thailand and Its Business Performance Term Paper

Role of Land Settlement Cooperative in the Kingdom of Thailand and Its Business Performance

Prior to the Cooperative Crisis

Agriculture is a mark of civilization for the mankind.

It is… read more

Term Paper 70 pages (18921 words) Sources: 1+ Topic: Agriculture / Food / Culinary

---

E-Banking on the Banking Industry Term Paper

E-Banking on the Banking Industry

To understand the relationship that can develop between the Internet and banks, one has to first understand the nature of both these items. The first… read more

Term Paper 35 pages (14760 words) Sources: 1+ Topic: Economics / Finance / Banking

---

Midwest Financial Banks on Content Acceleration Case Study

West Financial Banks on Content Acceleration

MidWest Financial is a brick-and-mortar and a brick-and-click bank. It began providing online banking to its 16,000 members in 1997. About half of its… read more

Case Study 3 pages (744 words) Sources: 1 Topic: Computers / IT / Internet

---

Central Banks Dissertation

Central Banks

What criteria are, and have been, used to determine monetary policy. Examine the evidence for and against the view that central banks can control inflation. Should central bank's… read more

Dissertation 35 pages (10788 words) Sources: 15 Topic: Economics / Finance / Banking

---

E-Banking Its History and Current Customer Behavior Research Proposal

E-Banking its History and Current Customer Behavior

This work demonstrates the growth trend of ebanking first by developing a brief history of the trend and then by focusing on the… read more

Research Proposal 50 pages (12488 words) Sources: 30 Style: Harvard Topic: Economics / Finance / Banking

---

View 100+ more related papers  >>