The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation

By Lawrence J. White | Go to book overview

1988 as they had held in the mid-1970s, their share of home mortgage holdings in 1988 would have been 44 percent rather than the actual level of 36 percent.

This decline in the relative importance of thrifts in the mortgage market (and of mortgages for thrifts) was not an accidental or random occurrence. As will be seen in Chapter 5, the early 1980s were a period of federal and state legislative and regulatory actions that were specifically designed to allow thrifts to diversify their asset portfolios away from (and thus reduce their dependence on) the narrow specialty of residential mortgage finance. It should come as no surprise that thrifts did what public policy expected them to do. (The poor choices of alternative investments that were made by hundreds of thrifts, however, were not expected by public policy.)

Despite these declining trends, the 1988-1989 snapshot presented earlier shows that the thrift industry still accounts for the largest percentage of mortgage originations and holdings among the identifiable groups of finance industry participants.

Two other trends are worth noting. First, the industry has been undergoing a process of transformation away from the mutual form of organization and toward stock companies. This pattern is shown in Table 2-8. The pace of conversions clearly accelerated after 1980. 7 The second trend, also shown in Table 2-8, is toward federal charters and away from state charters. Thrifts have usually had a great deal of flexibility in switching between state and federal charters, so they frequently chose on the basis of perceived advantages for their intended business strategies. Since the recognition in the mid-1980s that state-chartered thrifts were disproportionately represented among the insolvents, however, the federal regulatory apparatus has leaned heavily toward federal charters for thrifts that had to be placed under tight supervisory controls and for the new charters that were being issued to the acquirers of the insolvents. Also, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 greatly reduced the advantages that could accrue to being a state-chartered thrift, so switches to federal charters are likely to accelerate in the early 1990s.


Notes
1.
The two separate funds (SAIF and BIF) were created by the FIRREA legislation in order to justify the continued levying of higher insurance

-23-

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