Keating Five

The Keating Five (or Keating Five Scandal) refers to a Congressional scandal related to the collapse of most of the Savings and Loan institutions in the United States in the late 1980s.

Following the deregulation of the banking industry in the 1980s, savings and loan associations (also known as thrifts) were given the flexibility to invest their depositors' funds in commercial real estate. (Previously, they had been restricted to investing in residential real estate.) Many savings and loan associations began making risky investments. As a result, the Federal Home Loan Bank Board, the federal agency that regulates the industry, tried to clamp down on the trend. In so doing, however, the FHLBB clashed with the Reagan administration, whose policy was deregulation of many industries, including the thrift industry. The administration declined to submit budgets to Congress that would request more funding for the FHLBB's regulatory efforts.

In 1989, the Lincoln Savings and Loan Association of Irvine, Calif., collapsed. Lincoln's chairman, Charles H. Keating Jr., was faulted for the thrift's failure. Keating, however, told the House Banking Committee that the FHLBB and its former chief Edwin J. Gray were pursuing a vendetta against him. Gray testified that several U.S. senators had approached him and requested that he ease off on the Lincoln investigation. It came out that these senators had been beneficiaries of $1.3 million (collective total) in campaign contributions from Keating.

This allegation set off a series of investigations by the California government, the United States Department of Justice, and the Senate Ethics Committee. The ethics committee's investigation focused on five senators: Alan MacG. Cranston (D-Calif.); Dennis W. DeConcini (D-Ariz.); John H. Glenn Jr. (D-Ohio); John S. McCain III (R-Ariz.); and Donald W. Riegle Jr. (D-Mich), who became known as the Keating Five.

The ethics committee's special counsel concluded that of the five, Glenn (a former astronaut) and McCain (a former war hero) were not really involved in the influence-peddling scheme. Indeed, it was widely believed at the time that the Democratic party, which at the time controlled the Senate, wanted McCain -- the only Republican in the group -- to remain a target of the investigation in order to avoid the impression that the scandal was only a Democratic problem. As Glenn's involvement with Keating was equivalent to McCain's, the only reason that Glenn was made a subject of the investigation was to keep McCain in the suspected group. In August 1991, the committee concluded that Cranston, DeConcini, and Riegle's conduct constituted substantial interference with the FHLBB's enforcement efforts and that they had done so at the behest of Charles Keating. The committee recommended censure for Cranston and criticized the other four for "questionable conduct."

As it happened, Cranston, who was nearly 80 years of age, had already decided not to run for re-election in 1992. DeConcini and Riegle continued to serve in the Senate until their terms expired in 1995, but they did not seek re-election in 1994.

Glenn did choose to run for re-election in 1992 and it was anticipated that he would have some difficulty winning a fourth term in the Senate. However, Glenn handily defeated U.S. Rep. Michael DeWine for one more term in the Senate before retiring in 1999.

McCain also remained in the Senate and he made campaign finance reform a key legislative interest. The scandal was followed by a number of attempts to adopt campaign finance reform -- spearheaded by U.S. Sen. David Boren (D-Okla.) -- but most attempts died in committee and one measure that was passed was vetoed by President George H. W. Bush. A weakened reform was passed in the first year of President Bill Clinton's first term of office. Substantial campaign finance reform was not passed until the adoption of the McCain-Feingold Act.