Thrifts under Siege: Restoring Order to American Banking Book

	List of Figures	xiii
	List of Tables	xv
	Preface	xix
	Acknowledgments	xxiii
Chapter 1	Thrift Institutions in the U.S. Economy: Evolution Leading to Revolution	1
	How to Distinguish Contemporary Thrift Institutions and Commercial Banks from Other Financial and Nonfinancial Firms	2
	Origin and Specialization of American Thrift Institutions	3
	Early Financial Crises and Thrift Institutions	8
	Post-Depression Growth, Rising Interest Rates, and the Beginning of the Modern Thrift-Institution Crisis	13
	Organizational Form in the Thrift Industry	16
	Trade Associations and Thrift-Industry Influence on Regulatory Policy	20
	Summary and Conclusions	27
	Notes	28
Chapter 2	The Modern Thrift Crisis (Part One): A Precipitous Increase in Failures Accompanies Sharply Rising Interest Rates	31
	Weaknesses in the Regulatory System Make It Vulnerable to the Unexpected Increase in Interest Rates in 1980	31
	Monetary Policy Changes in October 1979, Interest Rates Soar, and Failures Mount	36
	Regulatory and Congressional Responses to the Crisis	40
	The Inundation of the FSLIC	49
	Transition to Part Two of the Modern Thrift Crisis	56
	Notes	56
Chapter 3	The Modern Thrift Crisis (Part Two): Gambling for Resurrection	59
	Not All Insolvent Thrifts Are Closed	59
	The Perverse Incentives Created by Insolvency and Augmented by an Overwhelmed Insurer	64
	The Contamination of Solvent Thrifts by the Survival Tactics of Insolvent Thrifts	70
	Regulators Attempt to Constrain the Risk-Taking Activities of Thrifts	74
	The FSLIC's Recapitalization Plan: Once More, Too Little, Too Late	79
	Will We Relive the First Part of the Crisis?	84
	Notes	86
Chapter 4	How to Resolve the Current Thrift-Industry Crisis	89
	Finding the Funds to Close Insolvent Institutions	90
	Triage Until All Insolvent Thrifts Are Closed	97
	Cost-Avoiding Strategies Available to Surviving Thrifts	107
	Notes	111
Chapter 5	How to Avoid Another Thrift-Industry Crisis	113
	The Role of Minimum Capital Requirements for Insured Depository Institutions	114
	In Troubled Periods, Do Not Lower Capital Requirements--Increase Examination and Supervision	117
	Raise the Minimum Required Capital Level to 6-Percent GAAP Net Worth and Raise It Now	119
	Explicitly Empower the Bank Board to Close Barely Solvent Thrifts	123
	Develop More Accurate Market-Value Accounting and Appraisal Practices	128
	Notes	133
Chapter 6	Regulation of Thrifts and Banks	137
	What Justifies the Existence of Thrifts and Banks?	137
	Runs: The Major Modern Regulatory Concern	139
	U.S. Government Regulation of Thrifts and Banks: Reaction to Crises	141
	Early Regulation of Thrifts: Precursor to the Modern Crisis	145
	Government Regulation of Thrifts in the Turbulent 1970s and 1980s	150
	Implications for the Future Regulation of Thrifts and Banks	158
	Notes	160
Chapter 7	Beyond the Thrift-Industry Crisis: The Redesign of Thrift and Bank Regulation and The Rollback of Deposit Insurance	161
	Mortgage-Backed Securities Have Forever Blown Apart Thrift Balance-Sheet compartmentalization	162
	The Role of Government Subsidies in Mortgage-Backed Securities	169
	Any Congressional Subsidy of Housing Finance Should Be as Direct as Possible	170
	A Comprehensive Framework for Regulatory Reform of Insured Depository Institutions	171
	Rollback of Deposit Insurance and the Role of the Federal Reserve in Closing Insolvent Institutions	175
	Summary: Increasingly Better Information Spells Accelerating Volatility for Depository Institutions	178
	Notes	180
	Appendices	183
A	Organizational Form and Charter-Type Data for FSLIC-Insured Institutions by State	184
B	Concentration of Assets within the Savings and Loan Industry as of December 31, 1986	186
C	GAAP Net Worth for FSLIC-Insured Institutions by State	187
D	Net-Worth Requirement or Capital Requirement for Savings and Loan Associations as of February 1987	190
E	Major Depository Financial Institution Legislation	192
	References	199
	Index	209
	About the Author	215