The Savings and Loan Industry: Current Problems and Possible Solutions

By Walter J. Woerheide | Go to book overview

1
History of the Federal Home Loan Bank System

The history of the savings and loan industry since the Great Depression is primarily the story of the creation and development of the Federal Home Loan Bank System (FHLBS). The FHLBS is composed of the Federal Home Loan Bank Board (FHLBB), 12 regional Federal Home Loan Banks (FHLBs), and the member institutions. The member institutions include mostly, but not exclusively, savings and loan associations ( SLAs). 1 All of the significant developments within the SLA industry have either produced changes in the regulatory stance of the FHLBB or have emanated from regulatory developments by the FHLBB. That is why the modern history of the SLA industry is also a history of the FHLBB. 2


THE CREATION OF THE MODERN FHLBS, 1932-1935

The most rapid period of growth for SLAs in terms of the establishment of new associations was the decade from 1915 to 1925. At the end of 1915 there were 6,806 associations, and by the end of 1925 there were 12,403. 3

Many of these institutions were set up by real estate people, insurance agents, lawyers, and contractors with the intention of using the associations as sources of income for their own businesses. 4 This control of SLAs by real estate concerns has been and remains a dominant feature of the thrift industry.

The concept of an FHLBS had been discussed by Congress in 1919, 1920, and 1927. No legislation materialized from these discussions because the proposals included granting authority to a government agency to issue tax-free bonds and because the banking industry viewed the creation of an FHLBS as detrimental to its own interests. Thus, it took the Great Depression to stimulate sufficient interest for Congress to formulate the final legislation. The Federal Home Loan Bank Act (FHLBA) was signed into law on July 22, 1932 by Herbert Hoover. The primary objectives were that the system would: (1) provide secondary liquidity to mortgage lending institutions which had temporary cash flow problems, (2) transfer loanable funds from saving surplus to saving deficit areas, and (3) attempt to stabilize the residential construction and financing industries. To ac

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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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