<P> In July 1982, the US Congress enacted the Garn--St. Germain Depository Institutions Act of 1982, which further deregulated banks and deregulated savings and loans . The Act authorized banks to begin offering money market accounts in an attempt to encourage deposit in - flows, and it also removed additional statutory restrictions in real estate lending and relaxed loans - to - one - borrower limits . That encouraged a rapid expansion in real estate lending while the real estate market was collapsing, increased the unhealthy competition between banks and savings and loans, and encouraged too many branches to be started . </P> <P> The recession affected the banking industry long after the economic downturn had technically ended, in November 1982 . In 1983, another 50 banks failed . The FDIC listed another 540 banks as "problem banks," on the verge of failure . </P> <P> In 1984, the Continental Illinois National Bank and Trust Company, the nation's seventh - largest bank (with $45 billion in assets), failed . The FDIC had long known of its problems . The bank had first approached failure in July 1982, when the Penn Square Bank, which had partnered with Continental Illinois in a number of high - risk lending ventures, collapsed . However, federal regulators were reassured by Continental Illinois executives that steps were being taken to ensure the bank's financial security . After its collapse, federal regulators were willing to let the bank fail to reduce moral hazard and so other banks would rein in some of their more risky lending practices . Members of Congress and the press, however, felt that Continental Illinois was "too big to fail". In May 1984, federal banking regulators finally offered a $4.5 billion rescue package to Continental Illinois . </P> <P> Continental Illinois itself may not have been too big to fail, but its collapse could have caused the failure of some of the largest banks . The American banking system had been significantly weakened by the severe recession and the effects of deregulation . Had other banks been forced to write off loans to Continental Illinois, institutions like Manufacturer's Hanover Trust Company, Bank of America, and perhaps Citicorp would have become insolvent . </P>

Why was inflation so high in the 80s