The Plight of the Thrift Institutions

The Plight of the Thrift Institutions

The Plight of the Thrift Institutions

The Plight of the Thrift Institutions

Excerpt

Since the Depression, savings and loan associations and mutual savings banks have been the principal repositories of household financial savings and the major sources of residential mortgage credit. Operating for most of that time in a protective web of regulations and a climate of stable interest rates, these thrift institutions performed the function of intermediation-- accepting small short-term deposits to make large long-term loans. The system began to change in 1966, however, when ceilings on deposit interest rates were first applied to thrift institutions. The industry flourished for at least ten years after that, but a serious crisis was building. When market interest rates rose sharply in the late 1970s, the legacy of governmental regulation pushed many firms near insolvency, and the entire thrift industry was seriously weakened.

The problem for the thrift institutions and the government agencies that insure their deposits is to manage the transition to deregulation while preserving deposit-taking and mortgage-lending services for the household sector. The challenge is to do so while maintaining public confidence in the nation's financial system, making efficient use of government resources, and avoiding the imposition of new regulations that could ultimately hinder rather than aid the adjustment process.

In this book Andrew S. Carron reviews the recent performance of the thrift industry and assesses its outlook under various sets of economic assumptions. He estimates the amount of financial assistance the industry will require and describes the forces compelling its structural consolidation. A chapter is devoted to an analysis of options available to the government, including tax and regulatory alternatives. The book concludes with recommendations for policy.

Andrew Carron is a research associate in the Brookings Economic Studies program. He is grateful to Suzanne M. Wehrs for providing research assistance, to John Karl Scholz for calculating the effects of various tax policies, and to the Social Science Computation Center for dataprocessing assistance. Barry P. Bosworth, Anthony Downs, Robert Kalish . . .

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