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T H E S A V I N G S A N D L O A N R E S C U E O F 19 8 9 : C A U S E S A N D P E R S P E C T IV E G e o r g e G . K au fm an W o rk in g Paper Series Issues in F in an cial R egu latio n R esearch D epartm ent Federal R ese rve B a n k o f C h ic a g o N o vem b er, 19 89 (W P -8 9 -2 3 ) REVISED 11/20/89 THE SAVINGS AND LOAN R ES CUE OF 1989: CAUSES AND PE RS PE C T I VE George G. Kauf ma n* In Aug u s t Reform, Recovery, cascading crisis 1989, and crisis from in about insolvent savings largest economic in 1975 the and loan of Chrysler Act for to to halt prevent features, This financial by Institutions both liquidating the earlier 1979 and other associations. in Fi n a n c i a l (FIRREA) industry gove r n m e n t dwarf i n g the A mong billion single and thrift again. $115 sector, e nacted En f o r c e m e n t occurring p rovides the Congress or the of a Act reorganizing as s i s t a n c e a factor such represents "bailouts" the by to far any of New Y o r k City some 50 and 80, respectively. Causes In the large that 1980s, losses of their economic could not because maintain *Loy o l a R eserve net that savings wo r t h and their the and loan a s s o c i a t i o n s reduce d the market deposits. repay both many of the Crisis As were a result, depositors records University of Bank of Chicago in and of they economically institutions accounting value full their and assets experienced insolvent and on so below negative that they time. However, r e gulators generally on a h i s t o r i c a l Chicago their expe r i e n c e d cost Consultant to or book value the Federal 2 basis, they at which occur, the does most of the the most solvent, the re fo r e fully of Association the Insurance at it was a de p o s i t o r a whole. the As some The f or ce d (which may be were aroun d of the thrift to of losses d e cla re d as insolvent residential mo r t ga ge s d i v e rs i fy 1980s The the risk, in all of industry its deposi ts and the there since both r e st ri ct in g studies time in bomb net pr e v en te d industry the as causes enough blame to involved. lie in the stringent The re g ul a ti on interest l o n g- t e r m short-term them to markets. either Savings of FSLIC. that s u b st a n t ia l by local is 1933. m o st l y as and economic magnitude, p r ob l e m financed a less the and on the the parties their was of ne g a t iv e sheer mak in g by or well and Loan Insurance predecessor co mplex to many Savings of these s u ff ic i e n tl y As $100,000 as re pr es e nt e d a liab il ity assume loans insolvent, S A I F ) , the industry them credit ge o gr ap hi cal ly . and the were the from origins substantial the not institutions to almost mo rt g ag e indicated, was guar an ty many r es t r i c t i n g to at loans or implied residential u na bl e Fund FSLIC's institu tio ns by and institutions underlying regulation deposits run both on these crisis sp r ea d FSLIC insolvent Indeed, risk, recognition were insured by the Federal or of institutions savings Corporation worth force time. However, at not n ec e s s a r i l y the fixed-rate deposits ma k in g Thus, across 1960s to were lines and go and most ly many pr od u c t waiting rate off. or 1970s In it did! sharp rise in interest rates in the late 1970s and early 3 1980s greatl y in c re as i n g result, 1982, with some all so lv en cy it was too and in interest industry delay ed insurance motivated $100 of As insolvent Some in At 1982. play. gr ea tly Despite e f fe ct ive both 85 this improved forces a by billion. into these ad op t i on witho ut Indeed, economically that a whole, a the wo rs en ed remedies the funds at until both reduce removed. deposit $100,000 the were on their banks per number both of able to preve nt de positors deposit with rates a of to money ma r ke t deposit base wh en This to disintermediation their on federal re du c e d and who D e re g u l a t i o n and them their risk exposures. er o di n g ceili ng s on $40,000 risk and loan assoc ia tio ns p ro v i de ceiling from to exert dis ci pli ne to I n sti tu tio ns substantially who had i nc re as ing order Act, savings came rates increased Th is de po sit or s In Control was account. o the losses. u n pr o f i ta b l e forces as some as part of the De p os i t o ry Monetary from were other large of funds, commensurately. industry was net w o rt h of late. In 1980, and the cost loans suff er ed of the crisis to institutions fall of institutions' m o rt ga ge of negative num ber prolonged from two-thirds of a the institutions ag gr eg ate time, o revenues the p e rc en t the in creased interest market were d e r e g ul a t i on was deposits funds from that was rates were high return. l i b er a l i ze d a response Regulation and and Q ev en tu al l y to ma rket forces 4 and p er m i t t e d depo si t institutions inflows to by b id d i n g gain for gr ea ter control funds freely on of the the basis of rates. o Advances in permitted across quick great ins urance deposits, large Ma n y te lec om m u n i ca t i o ns and almost distances. limits this amounts and p e r m it t e d the deposits" from distant were to expand their financial be for e ins ti tutions from the new in s t i tu tio n' s 1982 to By worth was as a marke t risk in a negat ive o Sharp downturns pay hi g h the who a $1.4 was in hopes oc cur re d to more it was were institutions the at $34 great more ec onomies on the Savings mi l l i on in insolvent in that Moreover, much available Western d e cl a r e d so individual d e pe nd ent from of contrast, funds of "growing out" in attract "brokered In example, time rapidly, for regardless gro wt h expa nd ed billion. to ga th ere d result, restri ct ed losses its higher in the country quickly. deposit For funds rates institu ti ons As and of the institution. (Texas) e xp an ded co m mer ci al banks, of the profile. time, bo th asset base manyfold, area Dallas that whole places. technology transfers to brokers, g en er al ly $2 b i ll i on by 1986. of forces, was local Association help st rength these ability from anywhere used the costless individual SLAs able computer Combined w i t h the of funds and the its net industry rapidly than of its problems. of some local 5 areas, particularly (e.g., Texas, co n s e que nc es real for and do mi nat ed by ene rg y or agriculture Oklahoma, estate. sharply those the As the Louisiana), values a of result, prices with re s id e n t ia l mo r t g ag e of r e p o ss e s s ed and adverse commer cial defaults real increased estate d ec rea se d sharply. In order to p erm it div er s i fy more in pa rt ic u la r to make and reduce a nu mb er loans residential development. ceilings, forces. correctly, than to insolvent, owners' i n s ti tu t io n the loss was de f in i t i o n risk additional did not such powers was a used wh en that risk the the was ventures to the to use on to the new rate market increase rather This was if was already any of or the succeeded, ve nture FSLIC. failed, Because average, However, estate these new powers to the and deposit response little If fail losses. need of real If the ventu re gain. shifted lo ng-term consumer in i n st i t u t i o n there and authori ty exposures. at risk. all as us e d them the than i nv est me nt good m a n a ge m e n t e f f ec ti ve l y high ins ti tutions of funds kept other to Congress, them deregulation their so own eq uity the assumed equity ma nag em e n t s likely as sociations gr a n t ed loans, the al tho ug h decrease particularly ne a r l y and Like poor loan investments d er e g u l a t i o n But, states estate loans and their risk exposure, of and real co m me rc ial savings the by FSLIC risk-seeking powers to increase 6 their risks; interest powers to credit time were not deal earli er and in the i d e nt i fi ed by which Federal for in in Only willing nu mb e r of the new to take big were not geared up cover and of These calm insufficient and found the three and the in or of the to make of ex ami na t io n s to in in cr ea s in g again to 283 of the the move. As a in this district 1983-84 and in 1985-86. vi olations not pursue d by was 173 Home area, the a Loan was major result, d e cl i n e d For Bank, moved super vi sor y in an were and supervision. F e der al to activities and There of of as so ciations years p r ob l e m 48 members geared understaffed, f re que nt ly were Rock FSLIC en vironment Some four occurred and were greatly examination, Little System al lo wable corrected. he a r t 11 183 known them field examiners 1983 and underorganized. for Bank taking a g enc ie s increases sudden risk Loan re la t i ve l y 1982-1983 Hqme them. in surveillance, was Dallas. were the su per visors example, their abi li ty the under enlarge Some many reg ul ato rs insolvencies taking e xa mi n ed meltdown to exposure. The era. risk their p ow ers institutions powers, SLA p re pa r e d undertrained, not old risk be ca use these wh en wi th their and smaller risk of being d e t e c t e d quickly. increase a these and, understand The at or give faster monitoring o used rate did risks most the staff annual from 261 1984-85 to in before 7 Widespread fear ex is te d regulators that the more damaging bo th because f in an cia ll y beyond to services than of the the to recover v ie w e d are solven cy as charg ed eva lu a t ed with on regulators with This spill -o ver special and Thus, there possibly even the own. In on the the was abili ty of reluctance a hope that addition, safety to and an incentive they would failures are regulators, who and are pa rtially provid ed do so. This incentive an other to loan failure a record of ba n k bank and of money and credit e x p l ic i t l y in so from deposit be ca u s e was effects and maintaining their firms. the av ai la b il i t y their a b la c k m a r k was and pr oblems on institutions of other in solvencies their and institutions be community. ex isting forbear to reduce poli cy mak er s po tential healthy p e r c ei v e d local reorga niz e failure public, financial of macroeconomy d ep osi to ry might to the to the failure perceived sick are among to postpone formal r eo r g a n i z a t i o n of insolvencies. As a result, re q u i rem en ts boo k value to operate, failures the with and re sol ve d three in solvent as insolvent a ss oci at ion s for the or this FHLBB progressively industry's capital Even many to continue costly both co ns equ en ces Indeed in 1988 had been long declined. capital institutions were p e r m i t t e d FSLIC. more red uc ed years on a and 53 p er cen t inso lv ent nearly tangible for 70 capital of other all SLA on a GAAP basis percent basis. had been Because 8 these in sti tutions incentives to increase were ge ner at i ng the interest ope ra t in g to meet out b id then costs.^ Thus, commitments for to deposit pay and even deposit availa ble the to high er pay and highe r w ea k e n i n g insolvent 1989 rates them thrift deposits they funds. av e r ag ed close and' meet The inflows had many to pay their daily of funds interest rates deposit inflows interest expenses a were rates true to on "Ponzi to pay Paul made possible by (If only such Charles forced Ponzi The Moreover, institutions incr ea sin g n e gat iv e that were to 40 perce nt insurance had been in 1920!) c o m pe t i n g defense, financially. institutions they on their assets outflows, in self so, Moreover, re qu ir e d net from Peter rates nearly and of fered h i g h insurance. deposit revenues o pe rat in g to the original or risk-taking. deposit s c h e m e ” of b or r o w i n g federal their their others deposits, insolvent insuffi ci ent on these used were their net r e sol ve d also costs worth in 1988 of and of assets. . It does not require a large p r o p o r t i o n of no np e r fo r mi n g loans to make it impossible for an i n st i t u t i o n to generate s uf fi ci e nt current revenues to meet its c u rr e n t obligations. For example, if one assumes a loan rate of 10 percent, a deposit rate of 7 percent, op er a ti ng costs of 2 pe rc e n t of assets, and no n o n e a r n i n g assets or capital, the i n st it ut io n earns a 1 percent margin. The 1 p er ce nt ma rg i n can be w i p e d out by an increase in n o n e a r n i n g assets of only slightly more than 10 percent. This which would reduce revenues to bel ow the 9 percent amount re q uir ed to meet current expenses. N o n p e r f o r m i n g asset ratios of 10 pe rc ent or more were frequent at Texas institutions in the later 1980s . 9 M a ss i ve those fraud occurr ed purchased estate as ather things, loans to far pr oj e ct in made association and a ss oc ia tio ns and and and of to course. for substantial. ($2 of jet French other to far value as In the They interest earnings to the addition, some corporate their for for officers' for to themselves, their decora te and, tre at ed places the of in f i na n c e d v a c a t i on homes, art away of friends for e n t e r t a i n i n g officers; among ext ending immediate a i rc ra ft chefs the collateral. e x tr a v a ga n c e s ex pensive their their dividends. fleets Both because institutions, the and trips bec aus e continued pay and politicians; purchased homes for re po rt e d p u r c h a s e d yachts memberships, cu sto me rs of then hired and associated were junkets; customers officers; the pr ov i d ed p ur c h a s e d rooms; friends, or nearly and, ju stify ec onomic real vi e w ed to the and or "piggy banks" families, either to promoters already documentation of used pa r ti cu l ar ly o w n e r s / m a na g e r s that wh ic h by were personal their excess loans they own financed prepayments, club their institutions, capital these fals if ied be ing di nn ing of themselves, amounts travel when Many i ns ti tut io ns some m i nim al developers insolvent. also with at - - all i n fr e q u e n c y reluctance offices their best first-class, ex aminations of the the fraud fre qu ent ly we nt u n d e t e c t e d early and several In billion) the years. of of the senior As p a r t i c u la r l y Ve rn o n Savings reg ul ato rs a result, outlandish and Loan to close losses horror were case A s so c i a t i o n of in 10 Vernon, when Texas, the date yet have o in a just for mark et be poor were or ex h a u s t e d insolvent. federal de pos it fund. FSLIC were monitoring market ma rk et as more U nf or tun at el y, caught activities. to to in in by new the a forms both the that had di sc ipline c o r r e s po n d in g o p er at ion more to of complex protect the FHLBB and reduced failure re du ct i o n of e c o n o m ic a ll y the and for po licy particular, e f f ec t i v el y the But discipline some s u rve il lan ce Combined, mar ket above, g o ve rn me nt as note d above, and to It penalt ie s be come Moreover, careful replace interest all. in st itutions had a at market p er mit m a tc h e d in u np r e p a r e d were industries. d i s c u ss e d and not insurance the they did not includes of discipline. re q u ir ed di sci pl i ne This r e d u ct i o n was first r e gu la ti on applied, wo rt h the deregulation in the net Thus, increase be by percent r e g u l at i o n rel uc tan t to 4 the unregulated r eo r g a n i z a t i o n their e n v i ro nm en t in However, discipline li q u i d a t i o n from no function. ge ne r al ly default in default! r eg u l a t i o n to wo r k effectively, to in over Therefore, gov er nme nt exists performance. market other on w h i c h me an from permitted makers to be were taken the occurred. not as loans finally loans, yet does change regulation, must interest the o p p o r t u n i t y implies whose Moreover, ha d not “Der e g ul at i on " of was 1987. deferred pa y m e n t pe r c e n t institution r e gulators mostly 96 in to their permit reg ul ato ry 11 discipline and the failure c o n s t i t u t e d a sure-fire Large po lit ic a l indus try would to Congress reduce the insurance its the were Wa shington, D.C. p ac kag es tens rather than Congressmen, technical co ns equences, Such usual the co rrective of from the resignation and D e m o cr at i c t a rn i sh ed the in cl ud ing such the of of r ep uta t io n well of known and D on al d Riegle. of massive, even were made in of dollars, dollars. aware by Many severe c o ns ti tue nt s to delay r e gu la to ry actions. of motivated, by important the An t h o ny senators of its an a number w oul d of the and was hig her either p o ss i b l y Speaker Whip, so l a rge , or of their industry, both House were thousands thousands that institutions. Co n t r ib u t i on s problem behavior, action the removal i ns olv en t stake legislative thrift through about extraordinarily acted on b eh alf c on tr i b u t i o n s of c o ng r es si o na l Glenn, at the contributions, who may not have been fully roots potentially or near and even hundreds the surveilla nce by in du str y other standards. only made or w ou ld b ri ng amounts up l e gis la tiv e the or of insolvent contributions of to premiums dollar were postpone cost independence, managers/owners Becau se to step for disaster. c ont rib ut ion s increase dep os it recipe to House, Coelho of as other Alan factor James in large in Wright 1989 and congressmen, Cranston, John 12 The failure suf f ic ie nt ne ga tiv e them of Congress funds net to w o r th under new institutions g ra nti ng assets, and minimum capital limite d of some frequently ap pea ran ce impro pr iet y FSLIC and red uce d to the i mportant ha d c re at ed System, and the taking em bar ras s Syst em of role a and Home Loan the c he e r l e a d e r by the and the secret halt with a Later gave and as sales disclosure. Board. SLAs the public discredit This further and which its financ in g housing Federal b e tw e e n Home Loan through Congress. bent that the role industry. in re l at i o n sh i p the actions confus ed for such suffic ie nt a Bank freq ue ntl y co rrectiv e fr e q ue nt l y on of the Board. industry industry on these frequently to tr aditional regulators notes returns for in cau se d pr og r a m pla ye d close loan "deals” the Federal out the effi ci ent p r om i s s o r y public both d ir ect ly and indirectly result, av oid br in g the e ffe ct ive ne ss The savings these sell requirements, car ri ed the reorganize to g u a r a nt e e i ng wi th out of and le s s N e g ot i a t io n s announcements ind i gn at io n of r e gul at ory of bidders of use provide eliminate FSLIC using breaks, standards. and cause d and to instit ut ion s the tax qu ic kly r e gu la to rs investors included waiving num ber the insolvent new This complex r e spo nd management, itself, were enable of to techniques. to This Bank As a over backwards to would penalize or industry as the opposed. regulator made it with easier The that for 13 the Home size Loan of Bank the remedies crisis, until concealment System the to its true deficit embarrassing, was if Pr o v i s i o n s As a result FSLIC's deficit, 1981 near to rapidly to year-end billion by in in the itself FSLIC from $5 a the size and SLA $100 $30 and Equality estimates the acknowledged were the by was the by $100 in 1987, $30 1988. The is best Congress Banking it moreover, concealing billion problem a l l o c a t e d that increased year-end the in than billion at and billion more official of losses declined, 1987, billion time, of continued 1985, $15 expectation policy public some the that made Act to (CEBA) sufficient thrift industry magnitude deficit to of to be the only billion. Finally, outrageous fraud, At problem. the effective near rates 1989, Competitive in from year-end b i l l i o n the the that size year-end $50 of true and developments, Until only $11 in mid-1987 by the impossible. interest totaling and the pursued problem about smaller, a coverup of the Act by 1989. understatement recapitalize cure early by as billion of narrowing billion mid-1988 e v i d e n c e d enacted first and causes, not above 1984, $20 $50 substantially official by some again the after zero 1986, billion of conceal a size combination of perceptions insolvent the of institutions, of eventual problem, favoritism and recognition "horror" in growing the of reports the of resolution dissatisfaction actual massive of with some the 14 handling of the culminated in the Administration Congress in of page some Treasury on of already this budget (REFCO). to the o loan 0.18 are the that are not annual 1994 raised by System the Bush enactment other by things, a the new be the to of the to total the that of general increased the to was to that budget the managements the provide FSLIC had Part and Financing these closing stop resolutions). federal not from permit notes Resolution noted from extent, failure on years institutions support part of off- Corporation funds represent institutions, responsible a except for the savings and replaced. deposit from insurance 0.208 premiums percent to and from lesser billion depositors, surcharge) in 1991. by three institutions earlier associations 0.125 $40 should extent Increases Bank eventual Among insolvent recorded raised insolvencies to credit in is of a (Some It "bailout” over worst issued and Loan legislation year. and, and amount same Home its billion the faith of and depository hemorrhaging. full Federal FIRREA: revenues sale the 1989 the $115 assessments or early August Raises by introduction in multi-hundred o problem 0.23 in 1991, to 0.15 in 1998. 0.083 percent to (0.083 before 0.12 On in on regular lowering banks, 1990 the and to them and to premiums 0.15 in 15 o Reorganizes FSLIC is the the separated Savings FDIC. The from activities Office of Thrift This of becomes Director Reorganizes funds, the The FDIC Board the percent these is with achieves a new capital all government the goodwill required the examination, are the and reorganized within the of the as Treasury structure Chairman two Bank up from the of FHLB deposit the Board insurance Insurance by to the Fund full $100,000 three to Director associations ratios, sanctions within as of (BIF). faith per five OTS, and account. members, and three President. loan are to supported c a p i t a l - to -a s s e t requirements other and the and (OTS) FSLIC. reorganized (SAIF) System administer expanded by FHLB The Comptroller, savings percent 1989 federal appointed Requires to explicitly the Fund and OTS. are members and Currency. FDIC and regulatory, similar of System Board Supervision SAIF of FHLB the new including 3 of the credit 1/2 the Bank Insurance funds Both o the is Comptroller the Loan chartering, Department. o Home Association enforcement the Federal ratios, including phased not may met, be minimum out to excluding by capital year-end growth until ratios. the minimum goodwill, goodwill, deposit imposed maintain by 1 and year-end 1994. If constraints association 16 Requires savings emphasis on state and residential chartered g e n e r a l l y to bonds SLAs all Permits bank operated subject o and as to thrifts associations policy oversight S e c r e t a r i e s Development Board, Board and of two will it is private board exist the sector by sale. to by be and junk mid-1994. acquired and by to commercial also is the manage their and be banks, disposing temporary the five year-end to equity out into FDIC and by be of consisting the Federal RTC Chairperson 1996. many the to of a the Urban Reserve The Board, of Trust and President. the most subject H o u s i n g the of Resolution and members, Chairman will pending by new appointed FDIC restricted c h a r t e r e d immediately managing T r e a s u r y the until expected a of the Directors associations to members of for managed (HUD), Chairperson RTC of phased of premiums. responsibility insolvent be estate their powers f e d e r a l l y real converted insurance (RTC) , are companies or Transfers Corporation The associations holding SAIF in generally loan increase lending. p e r m i t t e d must to associations loan investments savings commercial and t h o s e and associations mortgage savings associations by loan and RTC. FDIC the The During its existence, hundreds of insolvent liquidation or return to the 17 o Reorganizes the activities Finance financing of the Board Secretary of The Banks. and four operate banks associations as least o 10 percent Makes it easier and insurance o of S e p a r a t e s (Freddie Mac) reorganizes members it as elected by Federal board, for including by the district Home savings and to banks that residential the the President. to also in Housing 12 both now services FDIC to Loan loan hold at mortgages. suspend deposit institutions. the a the appointed assets Federal appointed members and quicker from as existing lend their insolvent the others can of institution five-person the before thrift System a HUD The FHLB under will FHFB and Home Loan Federal Mortgage Home quasi-private Loan entity by the President the Bank with and Corporation 5 13 System public private and board board shareholders. Future The the long-run regulators the effects obtained i n s o l v e n c i e s , substantially institutions insolvent absorb and as a the the Act additional thereby reducing result associations. all of of But o ut st and ing to losses rate bidding new resolve r e d u c i n g deposit the the uncertain. funds both the are funds and for may At the o n g oing premiums deposit be provi de s minimum, worst losses paid by funds by insufficient little of to cushion 18 either for p o t e n t i a l institutions rates rise or or the the than as they recognized, are and still than when mandatory and insurance at in mandated for proposed changes reduce banks more to the in are and of the Comptroller capital standards requirements negative of the net and of such are risk. of not Indeed, requirements Currency national has since banks permit worth. new lower environment, to to generally ratios might economic was capital for and tough recapitalization scaled lower not absence minimum not greatly considerably the and institutions crisis in the reduce are financial be breach the minimum with would result the interest standards not are the stable premiums a if some Deja that large vu one t i m e . the wanted to as thrifts, operate The by they part they before more does standards reorganization institutions least it capital depository capital they Moreover, minimum Indeed, a capitalized institutions insured 1980, during lower insurance. may for The in all premiums, advertized. were m a r g i n a l l y develops. insurance risks. at at requires incentives excessive standards Texas Act deposit existing take problems another Although increases for p r o blems Act call Treasury. to death know in additional si g ni fi can t does But, about recent time. for as years, at 18 the study time has provision public are of everything insurance this that month almost deposit Because changes an deposit that already basically pressure on likely to be insurance anyone been studied provides Congress less ever for to make than they 19 height inaction. Moreover, thrifts, the interest rate Act in the break-up industry, Act did to their risks act in immune from congressional in the Treasury an "administration" is the too more early early the or agency more vulnerable to nor industry the sort out OTS be by and being as line is are to all the longer-term go the Ac t they y e a rs p u s ;hed to are off as the pressures. implications the SLA That is , sufficient not, come be political again. be the becoming whether a:s t r a y the located granted political linty to agency of to permit likely "independent" the for that viewed they If actions the may attempts incentives discretion of generations. the in to the insolvency System influence an and the is it ch of their towards the System change directly both to 1980s. between than back to Discretionary rather more rise lead powers diversify them FHLB Indeed, may product to gave permitted, Department. Moreover, regulators, It still therefore pressures. the differently. are and that delay the pushes significantly forbearance before, and relationship not this ability "punishes" "cozy" it regulators place crisis, restricting conditions the the by credit first Although the reduces and straight*j acket crisis of ft the 0 at < D were and onto the to taxpayer more of the subsequent 20 R e f e r e n c e s 1. M. Sleaze" 2. William Regardie's James Adler R. Labich, 1988 and Barth, "Moral Michael Philip Hazard Resolutions", Structure and Binstein, M a g azine. December F. and Speaker p p . Barthomolomew, the Thrift Proceedings Competition *The 1987, of (Federal and Crisis: a and An Carol J. Analysis Conference Reserve the 51-150. Bank on of of Bank Chicago) (F o r t h c o m i n g ) 3. James R. and Barth Services 4. and Federal Michael Deposit Research. September Paul Duke Jr., Lost $1.4 Billion," Al, 5. Roy J. Harris Blames 1989, pp. Texas Wall Edward David Jr., the Al, J. 1989, S&L p p . Grew Street "Thrift Journal Deregulation of Financial 231-260. Into A J ournal. Lending April Giant and 1989, 27, pp . The D.C.; Maraniss Washington "Keating, Regulators", Under Wall Attack Street in Lincoln Journal. July S&L 18, A4. Kane, (Washington, 7. "How Bradley, A10. Mess, 6. G. Insurance," and Post S&L Insurance Urban Rick Mess: Institute Atkinson, National W e e k l y . How Press, "The June Did It H a p p e n ?. 1989). Texas S&L 26-July Meltdown", 2, 1989, pp . 6 -8 . 8. ________________, Washington 9. 10. 11. "The S&L 31, 1988, "The Mess pp. Thrift 10, 13. Bailout: "This is a p. the Texas W e e k l y . July Thrift 3 - 9, 1989, Pedersen, "Loan Stars 1988, p p . 42-45. - And How 130-140. 1989, 1989, and National Bill Powell and Daniel Business W e e k . June 20, August 12. "Politics Post to Fix It" , Special Fall Business Report", Scandal", pp . in W e e k . American 10-12. Texas", October Ban k e r . Supplement. A16. Larry Maker's J. Ticking White, View," Time "The Bomb", Wall Problems Contemporary of Policy Street the Issues Journal. FSLIC: June A 13, Policy (Forthcoming) Federal Reserve Bank of Chicago R ESEARCH STAFF M E M O R A N D A , W O R K I N G PAPERS A N D STAFF STUDIES The following l s s papers developed in recent years by the Bank's research s a f Copies of those it tf. materials that are currently available can be obtained by contacting the Public Information Center (312) 322-5111. Working Paper Series— A s r e of research studies on regional economic issues relating to the Sev eis enth Federal Reserve D s r c , and on financial and economic t p c . itit ois Regional Economic Issues Donna Craig Vandenbrink “The Effects of Usury Ceili g : ns the Economic Evidence,” 1982 David R. Allardice “Small Issue Industrial Revenue Bond Financing i the Seventh Federal n Reserve D s r c , 1982 itit” WP-83-1 William A. Testa “Natural Gas Policy and the Midwest Region,” 1983 WP-86-1 Diane F. S egel i William A. Testa “Taxation of Public U i i i s S l s tlte ae: State Practices and the I l n i Experience” lios WP-87-1 Alenka S Giese . William A. Testa “Measuring Regional High Tech Activity with Occupational Data” WP-87-2 Robert H. Schnorbus Philip R. Isr i e i h alvc “Alternative Approaches to Analysis of Total Factor Productivity a the t Plant Level” WP-87-3 Alenka S Giese . William A. Testa “Industrial R & D An Analysis of the Chicago Area” WP-89-1 William A. Testa “Metro Area Growth from 1976 to 1985: Theory and Evidence” WP-89-2 William A. Testa Natalie A. Davila “Unemployment Insurance: A State Economic Development Perspective" WP-89-3 Alenka S Giese . “A Window of Opportunity Opens for Regional Economic Analysis: BEA Release Gross State Product Data” WP-89-4 Philip R. Isr i e i h alvc William A. Testa “Determining Manufacturing Output for States and Regions” WP-89-5 Alenka S.Geise “The Opening of Midwest Manufacturing to Foreign Companies: The Influx of Foreign Direct Investment” WP-89-6 Alenka S Giese . Robert H. Schnorbus “A New Approach to Regional Capital Stock Estimation: Measurement and Performance” •WP-82-1 ••WP-82-2 ♦Limited quantity available. ♦♦Out of print. Working Paper Series (cont'd) WP-89-7 William A. Testa “Why has I l n i Manufacturing Fallen lios Behind the Region?” WP-89-8 Alenka S Giese . William A. Testa “Regional Specialization and Technology i Manufacturing” n WP-89-9 Christopher Erceg Philip R. I r i e i h salvc Robert H. Schnorbus “Theory and Evidence of Two Competitive Price Mechanisms for Steel” WP-89-10 David R. Allardice William A. Testa “Regional Energy Costs and Business Siting Decisions: An I l n i Perspective” lios WP-89-21 William A. Testa “Manufacturing’ Changeover to Services s i the Great Lakes Economy” n Issues i Financial Regulation n WP-89-11 Douglas D. Evanoff Philip R. I r i e i h salvc Randall C. Merris “Technical Change, Regulation, and Economies of Scale for Large Commercial Banks: An Application of a Modified Version of Shepard’ Lemma” s WP-89-12 Douglas D. EvanofT “Reserve Account Management Behavior: Impact of the Reserve Accounting Scheme and Carry Forward Provision” WP-89-14 George G. Kaufman “Are Some Banks too Large to Fail? Myth and Reality” WP-89-16 Ramon P De Gennaro . James T. Moser “Variability and Stationarity of Term Premia” WP-89-17 Thomas Mondschean “A Model of Borrowing and Lending with Fixed and Variable I terest Rates” n WP-89-18 Charles W. Calomiris “Do ''Vulnerable* Economies Need Deposit Insurance?: Lessons from the U.S. Agricultural Boom and Bust of the 1920s” WP-89-23 George G. Kaufman “The Savings and Loan Rescue of 1989: Causes and Perspective” Macro Economic:Issues WP-89-13 David A. Aschauer “Back of the G-7 Pack: Public Investment and Productivity Growth in the Group of Seven” WP-89-15 Kenneth N. Kuttner “Monetary and Non-Monetary Sources of I f a i n An Error Correction Analysis” nlto: WP-89-19 Ellen R. Rissman “Trade Policy and Union Wage Dynamics” •Limited quantity available. ••Out of print. Working Paper Series (cont'd) WP-89-20 Bruce C. Petersen William A. Strauss WP-89-22 Prakash Loungani Richard Rogerson Yang-Hoon Sonn 'Limited quantity available. "O u t of print. “Investment Cyclicality i Manufacturing n Industries’ ' Labor Mobility, Unemployment and Sectoral S i t : Evidence from hfs Micro Data” Staff Memoranda— A s r e of research papers in draft form prepared by members of the Research eis Department and distributed to the academic community for review and comment. ( e i s discon Sre tinued i December, 1988. Later works appear i working paper s r e ) n n eis. ••SM-81-2 George G. Kaufman “Impact of Deregulation on the Mortgage Market,” 1981 ••SM-81-3 Alan K. Reichert “An Examination of the Conceptual Issues Involved i Developing Credit Scoring Models n i the Consumer Lending Field,” 1981 n Robert D. Laurent “A Critique of the Federal Reserve’ New s Operating Procedure,” 1981 George G. Kaufman “Banking as a Line of Commerce: The Changing Competitive Environment,” 1981 SM-82-1 Harvey Rosenblum “Deposit Strategies of Minimizing the I t r s neet Rate Risk Exposure of S&Ls,” 1982 •SM-82-2 George Kaufman Larry Mote Harvey Rosenblum “Implications of Deregulation for Product Lines and Geographical Markets of Financial I s i i i n , 1982 ntttos” •SM-82-3 George G. Kaufman “The Fed’ Post-October 1979 Technical s Operating Procedures: Reduced Ability to Control Money,” 1982 SM-83-1 John J Di Clemente . “The Meeting of Passion and I t l e t nelc: A History of the term ‘ Bank' i the n Bank Holding Company Act,” 1983 SM-83-2 Robert D. Laurent “Comparing Alternative Replacements for Lagged Reserves: Why S t l for a Poor ete Third Best?” 1983 ••SM-83-3 G. O. Bierwag George G. Kaufman “A Proposal for Federal Deposit Insurance with Risk Sensitive Premiums,” 1983 •SM-83-4 Henry N. Goldstein Stephen E. Haynes “A C i i a Appraisal of McKinnon’ rtcl s World Money Supply Hypothesis,” 1983 SM-83-5 George Kaufman Larry Mote Harvey Rosenblum “The Future of Commercial Banks i the n Financial Services Industry,” 1983 SM-83-6 Yefa Tarhan “Bank Reserve Adjustment Process and the Use of Reserve Carryover Provision and the Implications of the Proposed Accounting Regime,” 1983 SM-83-7 John J Di Clemente . “The Inclusion of Thrifts i Bank n Merger Analysis,” 1983 SM-84-1 Harvey Rosenblum Christine Pavel “Financial Services i Transition: The n Effects of Nonbank Competitors,” 1984 SM-81-4 ••SM-81-5 •Limited quantity available. ••Out of print. Staff Memoranda (coni'd) SM-84-2 George G. Kaufman “The S c r e u ities A t c ivities of Commercial Banks,” 1984 SM-84-3 George G. Kaufman Larry Mote Harvey Rosenblum “Consequences of Deregulation for Commercial Banking” SM-84-4 George G. Kaufman “The Role of Traditional Mortgage Lenders i Future Mortgage Lending: Problems n and Prospects” SM-84-5 Robert D. Laurent “The Problems of Monetary Control Under Quasi-Contemporaneous Reserves” SM-85-1 Harvey Rosenblum M. Kathleen O'Brien John J Di Clemente . “On Banks, Nonbanks, and Overlapping Markets: A Reassessment of Commercial Banking as a Line of Commerce” SM-85-2 Thomas G. Fischer William H. Gram George G. Kaufman Larry R. Mote “The Securities Act v t e of Commercial iiis Banks: A Legal and Economic Analysis” SM-85-3 George G. Kaufman “Implications of Large Bank Problems and Insolvencies for the Banking System and Economic Policy” SM-85-4 Elijah Brewer, I I I “The Impact of Deregulation on The True Cost of Savings Deposits: Evidence From I l n i and Wisconsin Savings & lios Loan Association” SM-85-5 Christine Pavel Harvey Rosenblum “Financial Darwinism: Nonbanks— and Banks— Are Surviving” SM-85-6 G. D. Koppenhaver “Variable-Rate Loan Commitments, Deposit Withdrawal Risk, and Anticipatory Hedging" SM-85-7 G. D. Koppenhaver “A Note on Managing Deposit Flows With Cash and Futures Market Decisions” SM-85-8 G. D. Koppenhaver “Regulating Financial Intermediary Use of Futures and Option Contracts: Policies and Issues” SM-85-9 Douglas D. Evanoff “The Impact of Branch Banking on Service Accessibility” SM-86-1 George J Benston . George G. Kaufman “Risks and Failures i Banking: n Overview, History, and Evaluation” SM-86-2 David Alan Aschauer “The Equilibrium Approach to Fiscal Policy” •Limited quantity available. ••Out of print. Staff Memoranda (coni'd) SM-86-3 George G. Kaufman “Banking Risk i Historical Perspective" n SM-86-4 Elijah Brewer I I I Cheng Few Lee “The Impact of Market, Industry, and I t r s Rate Risks on Bank Stock Returns" neet SM-87-1 Ellen R. Rissman “Wage Growth and Sectoral S i t : hfs New Evidence on the S a i i y of tblt the P i l p Curve" hlis SM-87-2 Randall C. Merris “Testing Stock-Adjustment Specifications and Other Restrictions on Money Demand Equations" SM-87-3 George G. Kaufman “The Truth About Bank Runs” SM-87-4 , Gary D. Koppenhaver Roger Stover “On The Relationship Between Standby Letters of Credit and Bank Capital" SM-87-5 Gary D. Koppenhaver Cheng F. Lee “Alternative Instruments for Hedging Inflation Risk i the Banking Industry" n SM-87-6 Gary D. Koppenhaver “The Effects of Regulation on Bank Participation i the Market" n SM-87-7 Vefa Tarhan “Bank Stock Valuation: Does Maturity Gap Matter?" SM-87-8 David Alan Aschauer “Finite Horizons, Intertemporal Substitution and Fiscal Policy" SM-87-9 Douglas D. Evanoff Diana L. Fortier “Reevaluation of the Structure-ConductPerformance Paradigm i Banking" n SM-87-10 David Alan Aschauer “Net Private Investment and Public Expenditure i the United States 1953-1984" n SM-88-1 George G. Kaufman “Risk and Solvency Regulation of Depository I s i u i n : Past P licies ntttos o and Current Options" SM-88-2 David Aschauer “Public Spending and the Return to Capital" SM-88-3 David Aschauer “I Government Spending Stimulative?" s SM-88-4 George G. Kaufman Larry R. Mote “Securities Activ t e of Commercial Banks: iis The Current Economic and Legal Environment' SM-88-5 Elijah Brewer, I I I “A Note on the Relationship Between Bank Holding Company Risks and Nonbank Activity" SM-8 8 - 6 G. O. Bierwag George G. Kaufman Cynthia M. Latta “Duration Models: A Taxonomy" G. O. Bierwag George G. Kaufman “Durations of Nondefault-Free Securities" •Limited quantity available. ••Out of print. 7 Staff Memoranda (cont'd) SM-88-7 David Aschauer “I Public Expenditure Productive?” s SM-8 8 -8 Elijah Brewer, I I I Thomas H. Mondschean “Commercial Bank Capacity to Pay I t r s on Demand Deposits: neet Evidence from Large Weekly Reporting Banks” SM-88-9 Abhijit V. Baneijee Kenneth N. Kuttner “Imperfect Information and the Permanent Income Hypothesis” SM-88-10 David Aschauer “Does Public Capital Crowd out Private Capital?” SM-88-11 Ellen Rissman “Imports, Trade Policy, and Union Wage Dynamics” Staff Studies— s r e of research studies dealing with various economic policy i s e on a national A eis sus lvl ee. SS-83-1 ••SS-83-2 Harvey Rosenblum Diane Si g l ee “Competition i Financial S r i e : n evcs the Impact of Nonbank Entry,” 1983 Gillian Garcia “Financial Deregulation: Historical Perspective and Impact of the Garn-St Germain Depository Institutions Act of 1982,” 1983 •Limited quantity available. ••Out of print.
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