The role of the public accounting profession in the savings and loan debacle of the 1980s has recently been the subject of Congressional inquiry and extensive litigation by government agencies, and by angry stockholders and bondholders. These efforts suggest a broad misunderstanding by the public of the causes of the disaster. this paper illustrates that the difficulties which precipitated the crisis were a result of the historical development of the regulatory environment of the savings and loan industry. Examining this regulatory environment helps in understanding the current problems and crises of savings and loans as well as the situation in which the accounting profession now finds itself.

The paper illustrates that the manner in which the industry was regulated, including piecemeal and often conflicting legislation, locked the industry into long-term mortgage commitments and then urged diversification from these commitments. The paper illustrates that, over the years, industry responses to this legislation created a net worth crisis. The extent of the crisis was obscured by accounting principles developed by regulators, and which ran contrary to GAAP. Finally, the paper discusses recent legislation designed to correct the regulatory and accounting inconsistencies, and the anticipated effect of this legislation on the future of the savings and loan industry.

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