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

By Lawrence J. White | Go to book overview

mation of the industry's overall (GAAP) losses during these two years. They show losses of $6.9 billion and $22.2 billion for 1981 and 1982, respectively, rather than the $4.6 billion and $4.2 billion that was shown in Table 5-3.


Notes
1.
Though thrifts could borrow from their local Federal Home Loan Bank at relatively favorable rates, these rates too were much above the interest yields on the thrifts' portfolios of mortgages.
2.
Texas had led the way, providing substantial deregulation for its statechartered thrifts during the 1960s and 1970s. But, as late as 1978, statechartered Texas thrifts still had 82 percent of their assets in fixed-rate long-term home mortgages; see Fabritius and Borges ( 1989, Ch. 4 and p. 77). It was the expanded capabilities and incentives, discussed in the next section, along with the opportunities that they already had, that led to the expanded risk-taking by the Texas thrifts.
3.
The DIDMCA and the Garn-St Germain Act had many other provisions, not discussed here, that applied to banks as well as thrifts. For a summary of the DIDMCA, see Brewer et al. ( 1980); for a summary of the Garn-St Germain Act, see Garcia et al. ( 1983).
4.
DIDMCA also authorized thrifts to offer trust and fiduciary services.
5.
This authorization included high-yield, below-investment-grade corporate debt securities (usually called "junk bonds") thatwere not permitted as assets for commercial banks.
6.
Again, this authorization for direct ownership positions was one that was not permitted for commercial banks.
7.
Some cynical observers suggested that the switching of charters would also reduce political contributions to state legislators.,
8.
The exceptions were the state-chartered thrifts in Ohio and Maryland that were insured by state-sponsored funds, both of which collapsed in 1985.
9.
NOW accounts had first been authorized for state-chartered mutual savings banks in Massachusetts in the early 1970s. They had spread to other thrifts and to commercial banks in New England, New York, and New Jersey by the end of the 1970s.
10.
See Jacobs and Phillips ( 1972), Phillips and Jacobs ( 1983), and White ( 1986).
11.
"Tangible net worth" measures net worth according to GAAP, except that goodwill assets are excluded from the calculation. Though goodwill can be a legitimate asset, as will be argued later in this chapter, it can also be another way of artificially bolstering asset values and hence net worth. To abstract from this problem of evaluating the goodwill assets

-95-

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