NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Deregulation, Savings and Loan Diversification, and the Flow of Housing Finance

Edward J. Kane

NBER Working Paper No. 640
Issued in March 1981
NBER Program(s):   ME

This paper assesses the probable impact on S&Ls' profitability and participation in mortgage markets of The Depository Institutions Deregulation and Monetary Control Act of 1980. It tracks inflation-induced secular declines in the value of S&L mortgage holdings between 1965 and 1979 and argues(contrary to conventional wisdom) that deposit-rate ceilings proved no more than a minor and temporary source of help to S&Ls. Analysis presented shows that Federal Savings and Loan Insurance Corporation guarantees, not deposit-rate ceilings, kept the industry afloat in recent years. Further analysis centers on federal and state restrictions on S&L loan opportunities and on mortgage lenders' ability to design and to price mortgage instruments for an environment marked by accelerating inflation and increasing inflation uncertainty. Since S&Ls were free to raise whatever amount of funds they wished through large certificates of deposit, restrictions on S&L lending opportunities had to lie responsible for the much-publicized bouts of disintermediation these institutions suffered near post-1965 business-cycle peaks.

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Published: Kane, Edward J. "Deregulation, Savings and Loan Diversification and the Flow of Housing Finance." Savings and Loan Asset Management under Deregulation , pp. 80-109. San Francisco: Federal Home Loan Bank, 1981. (Proceedingsof Sixth Annual Conference.)

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