How Is the Banking Liquidity Crisis Different from the S&L Crisis?

Question: How Is the Banking Liquidity Crisis Different from the S&L Crisis?

Answer:

The Savings and Loan Crisis resulted in the failure of over 1,000 banks with over $500 billion in assets on their books. The FDIC estimates that the total cost to resolve the crisis was $153 billion. This was needed to administer the closing of defunct banks, pay the insurance on savings account deposits, and pay off other debts. Of this, the taxpayer cost was $124 billion.

The Fed's bailout in the current Banking Liquidity Crisis has totaled $224 billion, and this was from assets it keeps on hand for just such emergencies. If the Fed's actions are successful, and liquidity is restored, then the money will be repaid, and it shouldn't cost the taxpayers directly. If not, and the Fed gets stuck with the bill, it will be much larger than the S&L Crisis.

Of most concern is that no one knows exactly how deep the Subprime Mortgage Crisis goes. This was also the problem with the S&L Crisis, and the reason costs kept mounting.