Financial History Issue 118 (Summer 2016) - Page 41

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
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