The Savings and Loan Industry: Current Problems and Possible Solutions

By Walter J. Woerheide | Go to book overview

Introduction
Observers of the savings and loan industry today are nearly unanimous in their opinions that the industry is dying. Illustrative of their comments is the recent statement by one authority that "most of the nation's 4,000 thrifts will go under in merger or outright failure . . . leaving maybe 1,000, maybe 500." 1 It is easy to share this pessimism when one looks at recent trends in industry profits and net cash flows.The purpose of this book is to provide answers to three questions:
1. How did the industry get into its current situation?
2. What is being done to save the industry?
3. What are the probable consequences of current actions?

While there might be general agreement on the answers to the first two questions, the answer to the third query can only be speculative. The first two questions are addressed in Chapter 1, which traces the history of the Federal Home Loan Bank System and reviews recent legislation affecting the industry. Speculation about the answer to the third question forms the basis for the other nine chapters in this book.

There is no obvious order for the last nine chapters, but there are some reasons for the order in which they have been placed. One of the problems that exists in the savings and loan literature is that some of the writers and researchers do not fully understand the factors that influence the profitability of savings and loans. These factors include such basic features as the organizational form of the association and the state in which the thrift operates, as well as such operating characteristics as the types of mortgages the thrift acquires, the amount of reselling of mortgages undertaken by the thrift, and the magnitude of nondeposit borrowing utilized by the thrift. For this reason, the determinants of profitability comprise the second chapter. This provides a better background for understanding the ramifications of some of the changes which are occurring in the industry.

The basic problem experienced by the thrift industry is that its interest rate

-xiii-

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The Savings and Loan Industry: Current Problems and Possible Solutions
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Acknowledgments xi
  • Introduction xiii
  • Note xv
  • Abbreviations xvii
  • 1 - History of the Federal Home Loan Bank System 3
  • Notes 23
  • 2 - The Determinants of Profitability for Savings and Loans 28
  • 3 - Measuring the Interest Rate Risk Exposure of Savings and Loans 49
  • Notes 67
  • 4 - Alternative Mortgage Instruments 70
  • Notes 97
  • 5 - Financial Futures and Forward Commitments 104
  • Notes 121
  • 6 - Consumer Lending 124
  • Notes 135
  • 7 - The Elimination of Interest Rate Ceilings 138
  • Notes 148
  • 8 - The Introduction of Now Accounts 152
  • Notes 160
  • 9 - Mergers and Conversions 163
  • SUMMARY AND CONCLUSIONS 184
  • 10 - The Future 189
  • Notes 195
  • Bibliography 197
  • Index 211
  • About the Author 217
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