During the 1980s, 525 insolvent savings and loans (S&Ls) were liquidated or sold at an enormous cost. Resolving the remaining troubled S&Ls could cost American taxpayers hundreds of billions. What went wrong with the industry? Are fraud and deregulation solely responsible for this financial disaster?

In this volume the author argues that federal deposit insurance itself is largely to blame: by permitting institutions to operate with inadequate capital, the system subsidizes weak institutions while increasing the risk to taxpayers. In addition, regulation and supervision prevent S&Ls from adapting to changing market forces.

Congress, the administration, and the regulatory agencies, the author says, have created a flawed deposit insurance system and a rigid, outdated supervisory and regulatory structure. He recommends a thorough reexamination and restructuring that would protect both depositors and taxpayers and would allow the industry to respond to changes in the marketplace.