tailieunhanh - Appendix 1 To Chapter The Savings and Loan Crisis and Its Aftermath

A bank must realize that managing customer information effectively allows it to delight customers. Hence, it must build a knowledge repository of customer information that permits a holistic view of the customer . Such a view will also help banks gauge the reasons for certain customer behavior . Information could be gathered by carefully listening to customers during their numerous interactions with their banks. Customers could also be asked for their active feedback and suggestions. One way of incorporating customer feedback is through a customer advisory board where the banks share their plans and seek customer opinion on them. Such. | Appendix 1 To Chapter nThe Savings and Loan Crisis and Its Aftermath In this appendix we first look in detail at why the savings and loan crisis occurred what role political economy played in the crisis and the legislation that resulted from the crisis. THE SAVINGS AND LOAN AND BANKING CRISIS WHY To better understand the savings and loan and banking crisis of the 1980s let s break up our discussion into two stages. Early Stage of the Crisis The story starts with the burst of financial innovation in the 1960s 1970s and early 1980s. As we saw in Chapter 10 financial innovation decreased the profitability of certain traditional lines of business for commercial banks. Banks now faced increased competition for their sources of funds from new financial institutions such as money market mutual funds even as they were losing commercial lending business to the commercial paper market and securitization. With the decreasing profitability of their traditional business by the mid-1980s commercial banks were forced to seek out new and potentially risky business to keep their profits up by placing a greater percentage of their total loans in real estate and in credit extended to assist corporate takeovers and leveraged buyouts called highly leveraged transaction loans . The existence of deposit insurance increased moral hazard for banks because insured depositors had little incentive to keep the banks from taking on too much risk. Regardless of how much risk banks were taking deposit insurance guaranteed that depositors would not suffer any losses. Adding fuel to the fire financial innovation produced new financial instruments that widened the scope for risk taking. New markets in financial futures junk bonds swaps and other instruments made it easier for banks to take on extra risk making the moral hazard problem more severe. New legislation that deregulated the banking industry in the early 1980s the Depository Institutions Deregulation and Monetary Control Act DIDMCA of 1980