The savings and loan crisis and the banking troubles of the 1980s and early 1990s were not primarily due to fraud, deregulation, inadequate supervision, overly exuberant lending, abrupt changes in tax policies or a host of other short-term causes. All of these factors certainly exacerbated and, in some cases triggered, the problems of depository institutions. But the underlying fundamental reason for the thrift crisis and banking troubles, argues banking and financial analyst David S. Holland, was a form of excess capacity that resulted from many decades of protection from the rigors of competition and the marketplace.

Dr. Holland shows that the protection was due to geographical and product limitations and a deposit insurance system that became focused on the prevention of failures of individual institutions. By 1980, the depository institutions industry was ripe for a severe culling-a culling that legislators and regulators probably could have done little to avoid, although they might have channeled and controlled it better. How the government, the industry, and the public reacted to the culling is an instructive and fascinating study in human nature for all those concerned with banking policy and regulation.