The Savings and Loan Industry: Current Problems and Possible Solutions

By Walter J. Woerheide | Go to book overview

10
The Future

The greatest single determinant of the future of the thrift industry is certainly the level and the shape of the yield curve. As long as interest rates are at "high" levels, the thrift industry will be an ailing one. The longer the period of time over which the yield curve remains inverted, the more fatal the ailment is likely to be. Since the shape and location of the yield curve are beyond the control of the industry and its regulators, we shall proceed on the assumption that the interest rate environment in the future will at least be tolerable enough for an efficient thrift institution to survive.

As indicated at the start of this book, the various bail-out schemes for the industry which have been suggested in recent years would not be discussed. The reasons were twofold. First, such programs would at best only replenish some of the financial strength of the industry, without really changing the basic structure or risk exposure of SLAs. Even if the schemes were successful in shoring up the net worth of the industry, they would leave thrifts vulnerable to the same types of problems from which they are suffering today. This book has instead concentrated on those developments which have the promise of creating changes in the basic structure and risk exposure of the industry so that if it survives the current economic situation, future such situations should not have such disastrous effects. We have considered those topics affecting the long-term viability of the industry, ignored those topics affecting the immediate survival of the industry, and assumed that the industry will survive in some form.

The second reason for not discussing bail-out programs is that it appears in the current political environment that such schemes are not looked upon favorably. Certainly the Reagan administration is unenthusiastic about promoting a multitude of bail-out programs, and Congress seems intent on emphasizing deregulation where possible rather than governmental intervention. Even the President's Commission on Housing has heavily emphasized avoidance of government intervention and bail-out schemes. 1

The conclusions from the various topics covered in the book are strongly suggestive that the changes occurring in the SLA industry will make it viable in

-189-

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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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