How did two pieces of regulatory legislationthe DIDMCA in 1980 and the DIA in 1982change the

QUESTION

How did two pieces of regulatory legislationthe DIDMCA in 1980 and the DIA in 1982change the operating profitability of savings institutions in the early 1980s? What impact did these pieces of legislation ultimately have on the risk posture of the savings institutions industry? How did the FSLIC react to this change in operating performance and risk?
The two pieces of legislation allowed savings associations to offer new deposit accounts, such as NOW accounts and money market deposit accounts, in an effort to reduce the net withdrawal flow of deposits from the institutions. In effect this action was an attempt to reduce the liquidity problem. In addition, the savings associations were allowed to offer adjustable-rate mortgages and a limited amount of commercial and consumer loans in an attempt to improve the profitability performance of the industry. Although many savings

tions were safer, more diversified, and more profitable, the FSLIC did not foreclose many of the savings associations which were insolvent. Nor did the FSLIC change its policy of assessing higher insurance premiums on companies that remained in high risk categories. Thus many savings associations failed, which caused the FSLIC to eventually become insolvent.

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