How did high interest rates affect savings and loans (S&Ls;) in the 1980s?

Question

S&Ls; lost money. Their earnings were not enough to pay off the loans they had taken out from the Federal Reserve.

S&Ls; made money. They earned high interest on loans they made throughout the 1980s.

S&Ls; made money. High interest rates attracted more depositors, and S&Ls; used their deposits to make more loans.

S&Ls; lost money. They had to pay high interest on deposits, but took in less money from low interest loans.

Answer 1

The correct statement regarding the impact of high interest rates on savings and loans (S&Ls) in the 1980s is:

S&Ls; lost money. They had to pay high interest on deposits, but took in less money from low interest loans.

During the 1980s, high interest rates led to an increase in the cost of funding for S&Ls, as they had to offer higher interest rates to attract and retain depositors. However, many of the loans they had issued earlier were at lower interest rates. This mismatch between what S&Ls had to pay on deposits and what they earned from existing loans created significant financial strain, leading to losses for many institutions in the sector.