Federal Savings and Loan Insurance Corporation Compared to the Federal Deposit Insurance Corporation

FSLIC Vs. FDIC

After the stock crash of 1929 and over a thousand bank failures, congress and President Franklin D. Roosevelt created the Federal Deposit Insurance Corporation (FDIC) in 1933 in order to provide a federal government guarantee of deposits and maintain stability and public confidence in the banking system of the United States. A year earlier, the Federal Home Loan Bank Act of 1932 established the Federal Home Loan Bank System (FHLBB) as a source of liquidity and low-cost financing for the Savings and Loan Industry (S&L) for which legislation was driven by the public policy goal of encouraging home ownership. The same year as the formation of the FDIC the Home Owners Loan Act of 1933 empowered the FHLBB to charter and regulate federal savings and loan associations promoting the expansion of the S&L industry to ensure the availability of home mortgage loans. Therefore, a year later the National Housing Act of 1934 created the Federal Savings and Loan Insurance Corporation (FSLIC) to provide federal deposit insurance for S&L's similar to what the FDIC provided for commercial banks and mutual savings banks. However, while the FDIC was established as an independent agency, the FSLIC was placed under the authority of the FHLBB which meant that for commercial banks and mutual savings banks the chartering and insurance functions were kept separate while for federally chartered S&L's both functions were under the supervision of the same agency. The FHLBB proved to be weaker in its examination, supervision, and enforcement practices than that of federal banking agencies, and thus would in part cause the failure of the FSLIC (CBB).