During the late 1980s, many savings and loan institutions (S&Ls) became insolvent
because those who managed these organizations invested depositors’ money in high risk ventures
that collapsed or were grossly overvalued. As a result, the Federal Savings and Loan Insurance
Corporation (FSLIC) had to repay up to $100,000 per account to those who lost their deposits.
Additionally, the FSLIC assumed the liabilities of so many defunct S&Ls that the agency did not
have enough cash to repay the depositors. Potentially, the federal government was on the hook
for approximately $100 billion dollars (Black 2005).
To further complicate matters, many House members and Senators received campaign
contributions in return for keeping regulators away from the teetering S&Ls. For example, five
Senators known as the “Keating Five” received a total of $1.3 million in campaign contributions
from Charles Keating, the Chief Executive Officer of Lincoln Savings and Loan.
Additionally,
Ferdinand St. Germain (D-RI), former chair of the House Banking, Finance and Urban Affairs
Committee, received money from various S&Ls to pass laws that loosen regulations on those
institutions (Black 2005). As a result of these scandals, the public demanded that Congress and
the President do something about the S&L crisis and enact laws to prevent this from happening
again.
Representative Henry Gonzales (D-TX) proposed H.R. 1278, a bill designed to end the
S&L crisis. Once H.R. 1278 went to the floor, some House members wanted to amend it to ease
the newly proposed regulations on S&Ls. For example, one of the committees which heard the
bill added a provision which exempted Frost National Bank in San Antonio, Texas from any
1 The five Senators who received these contributions were Alan Cranston (D-CA), Dennis
DeConcini (D-AZ), Donald Riegle (D-MI) John Glenn (D-OH), and John McCain (R-AZ). The first three
senators retired as soon as their terms ended. To be fair, the last two Senators were minor participants at
best in the scandal (Black 2005).
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