the number of u.s. bank failures in each year from 1960 through 2009. in most of these years, fewer than 10 banks failed. the biggest exception is the 1980s, when failures grew rapidly, peaking at 534 in 1989. some of failed institutions were commercial banks, but the majority were savings and loan associations. the episode is often called the S&L crisis. two of its causes were rising interest rates and loan defaults. examining the episode yields a deeper understanding of interest rate risk and credit risk.
Rising interest rates bank rare-sensitivity gaps were highly negative in the 1980s, especially at S&L, where most liabilities were deposits with zero