The Savings and Loan Industry: Current Problems and Possible Solutions

By Walter J. Woerheide | Go to book overview

costs in the form of a higher employee turnover rate and lower rates of productivity.

Some estimates have been developed as to the likely extent of SLA participation in the consumer loan market. For example, Brian Maris envisions these loans growing to about 9.6 percent of total assets by 1986, at which time they will likely level out relative to total assets. 51 Richard Marcis and Dale Riordan do not evision quite as much growth. They see consumer loans accounting for about 6.5 percent of total assets by 1986 and moving to only 7.5 percent of total assets by 1988. 52 The projections by Marcis and Riordan are part of a set of forecasts of the industry balance sheet under different interest rate scenarios. Although they project parts of the rest of the asset mix to be dependent upon the sequence of future interest rates, they see the percentage of assets in consumer loans as independent of interest rate scenarios.


CONCLUSIONS

Although the thrift industry has received substantially expanded consumer lending authority in the last few years, it would appear that such authority is of relatively little value for most of the industry. While it is true that consumer loans have higher gross yields, they also are costly to provide and have higher default rates. On a net yield basis, they are apparently no more profitable than other types of loans. They also do not provide a secondary source of liquidity.

They do offer the opportunity of an extra service that SLAs can offer consumers in the competition between thrifts and commercial banks for a loyal customer base. They also have the attractive feature of having a quite low duration. Therefore, it is likely that some of the larger SLAs who can afford the fixed cost of a consumer loan operation will make good use of the consumer lending authority. Nevertheless, most of the industry will find itself better served by not entering the consumer loan field. In fact, the previously mentioned forecasts by Maris and by Marcis and Riordan are perhaps both overly optimistic as to the involvement of the thrift industry with consumer loans.


NOTES
1.
See, for example, Leo Grebler, "The Future of Thrift Institutions in the United States", Joint Savings and Loan and Mutual Savings Banks Exchange Groups, Danville, Ill., 1969; and Kenneth Thygerson, "The Case for Savings and Loan Participation in the Consumer Credit Market," Working Paper No. 4, United States Savings and Loan League, Chicago, 1973.
2.
Shelby J. Smith, "Texas S&Ls: Implications for Consumer Lending," Invited Research Working Paper No. 13, Office of Economic Research, Federal Home Loan Bank Board, June 1976, p. 27.
4.
A chattel mortgage is one with personal property, as opposed to real estate, as collateral.

-135-

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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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