Regulation Q continued from page 31
Regulation Q continued from page 31
in commercial paper , corporate debt and other instruments which they were previously forbidden from accessing — longterm loans and mortgages with locked in low interest rates plagued many thrifts ’ and savings & loans ’ balance sheets as they struggled to stay solvent .
The mounting crisis necessitated further action by the government in order to avoid widespread insolvency that would have taken place , which came under the Garn-St . Germain Act in 1982 , which the Reagan presidency endorsed . The legislation , which was sponsored by a Republican and a Democrat , respectively , provided a degree of relief that many institutions required by authorizing the FDIC to credit firms which were insolvent or bankrupt , facilitated federal charter registration , allowed financial institutions to merge more easily and expanded the underwriting capabilities of savings & loans institutions .
This legislation stood to ensure that thrifts , savings & loans associations , commercial banks and mutual savings banks were deregulated and rendered solvent — but at a huge price . Many firms were required to merge or were consolidated , dramatically reducing the availability of smaller financial institutions throughout the 1980s . Additionally , the expanded investment capabilities that savings & loans associations were granted under the Garn-St . Germain Act — while originally designed to allow these institutions to remain solvent through shortterm financing — led to reckless investments and malfeasance that culminated in the Savings & Loans Crisis by the end of the decade .
In the end , deregulation was not the ultimate solution to the problems plaguing the industry throughout the 1970s and 1980s . While it appeared necessary in order to lift burdensome interest rate ceilings and to allow for greater investment capabilities , it couldn ’ t stop the collapse of the thrift industry and it arguably contributed to these institutions ’ demise by the start of the 1990s . However , this period of time does shed a bright light on the difficulties that banking institutions faced with post-Depression regulatory policies , as well as how they coped with them using financially innovative solutions .
Gabriel Suprise is a regulatory analyst working on Wall Street . Prior to moving into finance , he worked as a journalist covering financial derivatives and as a regulatory consultant in London . He holds Master ’ s degrees from Columbia University and the London School of Economics in Financial History and Regulation , in addition to a Bachelor ’ s degree from the University of Michigan — Ann Arbor .
Sources
Board of Governors of the Federal Reserve System . “ Effective Federal Funds Rate .” Federal Reserve Bank of St . Louis Economic Research . Accessed August 07 , 2016 . https :// fred . stlouisfed . org / series / FEDFUNDS
Carron , Andrew S . “ The Plight of the Thrift Institutions .” Studies in the Regulation of Economic Activity . Washington , DC : Brookings Institution . 1982 .
Carter , Jimmy . “ Depository Institutions Deregulation and Monetary Control Act of 1980 Remarks on Signing H . R . 4986 Into
Law .” March 31 , 1980 . The American Presidency Project . Accessed on August 7 , 2016 . http :// www . presidency . ucsb . edu / ws / index . php ? pid = 33206 # axzz1mquUfO88
Geisst , Charles R . Undue Influence : How the Wall Street Elite Put the Financial System at Risk . Hoboken , NJ : John Wiley & Sons , Inc . 2005 .
Gilbert , Alton R . “ Requiem for Regulation Q : What It Did and Why It Passed Away .” Federal Reserve Bank of St . Louis ( February , 1986 ). Accessed August 07 , 2016 . https :// research . stlouisfed . org / publications / review / 86 / 02 / Requiem _ Feb1986 . pdf
H . R . 4986 — Depository Institutions Deregulation and Monetary Control Act of 1980 https :// www . congress . gov / bill / 96thcongress / house-bill / 4986
H . R . 6267 — Garn-St . Germain Depository Institutions Act of 1982 https :// www . congress . gov / bill / 97th-congress / house-bill / 6267
International Monetary Fund , International Financial Statistics and data files , “ Inflation , consumer prices ( annual %).” World Bank . Accessed August 07 , 2016 . http :// data . worldbank . org / indicator / FP . CPI . TOTL . ZG ? locations = US
The Report of the President ’ s Inter-Agency Task Force on Regulation Q . “ Deposit Interest Rate Ceilings and Housing Credit .” Department of the Treasury , submitted by William Miller . August 23 , 1979 .
Robinson , Kenneth J . “ Depository Institutions Deregulation and Monetary Control Act of 1980 .” Federal Reserve Bank of Dallas , March 1980 ( Written November 22 , 2013 ; accessed August 07 , 2016 ). http :// www . federalreservehistory . org / Events / DetailView / 43
www . MoAF . org | Summer 2016 | FINANCIAL HISTORY 39
Regulation Q
continued from page 31
in commercial paper, corporate debt and
other instruments which they were previously forbidden from accessing — longterm loans and mortgages with locked in
low interest rates plagued many thrifts’
and savings & loans’ balance sheets as they
struggled to stay solvent.
The mounting crisis necessitated further action by the government in order to
avoid widespread insolvency that would
have taken place, which came under the
Garn-St. Germain Act in 1982, which
the Reagan presidency endorsed. The
legislation, which was sponsored by a
Republican and a Democrat, respectively,
provided a degree of relief that many
institutions required by authorizing the
FDIC to credit firms which were insolvent
or bankrupt, facilitated federal charter
registration, allowed financial institutions
to merge more easily and expanded the
underwriting capabilities of savings &
loans institutions.
This legislation stood to ensure that
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