tailieunhanh - Thrift Industry Crisis: Causes and Solutions

Today, most Africans – well over 50 percent – live on less than $2 a day. Moreover, all of the 21 countries listed in the United Nations’ low human development ranking are in sub-Saharan Africa. However, there are several positive signs: More than 35 percent of Africans live in economies that have seen sustained growth of more than 4 percent a year for the last 10 years, setting the stage for many Africans to enjoy a better life. However, the continent is still under-served by financial services. The cost of bringing microfinance services to Africa is higher than in other regions. | R. DAN BRUMBAUGH JR. Independent Economist ANDREW s. CARRON First Boston Corporation Thrift Industry Crisis Causes and Solutions For the second time this decade the thrift industry is in crisis. Once again thrift industry performance is deteriorating failures are widespread the regulators are besieged and Congress has passed major banking legislation following protracted debate. Indeed the current difficulties will be harder and more costly to resolve than those of the early 1980s. The implications for competition in financial services availability of funds for housing and federal budget expenditures are profound. We begin our paper with a review of the thrifts difficulties from signs of trouble in the 1970s to the contemporary attempts to shore up the deposit insurance fund. In doing so we show how regulatory forbearance during the early 1980s turned an initial crisis caused by the thrift industry s undiversified portfolio of fixed-rate long-term mortgages into a near-disaster in which hundreds of insolvent thrifts continue to operate. We assess the policy response to the current crisis and make recommendations of our own. Finally we show how the recently deregulated thrift industry has been diversifying and moving away from its traditional role. We also discuss the outlook for the thrift industry in the context of regulatory reform innovation and competition. We would like to thank the members of the Brookings Panel and James Barth for helpful comments on an earlier draft. 349 350 Brookings Papers on Economic Activity 2 1987 The Thrift Industry in Historical Perspective The thrift industry comprises primarily savings and loan associations and mutual savings banks credit unions are sometimes included. Thrifts are generally distinguished from commercial banks in that they are regulated by different agencies different deposit insurance corporations guarantee their deposits and their balance sheets have historically included different assets and Thrifts