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in commercial paper , corporate debt and other instruments which they were previously forbidden from accessing — longterm loans and mortgages with locked in low interest rates plagued many thrifts ’ and savings & loans ’ balance sheets as they struggled to stay solvent .
The mounting crisis necessitated further action by the government in order to avoid widespread insolvency that would have taken place , which came under the Garn-St . Germain Act in 1982 , which the Reagan presidency endorsed . The legislation , which was sponsored by a Republican and a Democrat , respectively , provided a degree of relief that many institutions required by authorizing the FDIC to credit firms which were insolvent or bankrupt , facilitated federal charter registration , allowed financial institutions to merge more easily and expanded the underwriting capabilities of savings & loans institutions .
This legislation stood to ensure that thrifts , savings & loans associations , commercial banks and mutual savings banks were deregulated and rendered solvent — but at a huge price . Many firms were required to merge or were consolidated , dramatically reducing the availability of smaller financial institutions throughout the 1980s . Additionally , the expanded investment capabilities that savings & loans associations were granted under the Garn-St . Germain Act — while originally designed to allow these institutions to remain solvent through shortterm financing — led to reckless investments and malfeasance that culminated in the Savings & Loans Crisis by the end of the decade .
In the end , deregulation was not the ultimate solution to the problems plaguing the industry throughout the 1970s and 1980s . While it appeared necessary in order to lift burdensome interest rate ceilings and to allow for greater investment capabilities , it couldn ’ t stop the collapse of the thrift industry and it arguably contributed to these institutions ’ demise by the start of the 1990s . However , this period of time does shed a bright light on the difficulties that banking institutions faced with post-Depression regulatory policies , as well as how they coped with them using financially innovative solutions .
Gabriel Suprise is a regulatory analyst working on Wall Street . Prior to moving into finance , he worked as a journalist covering financial derivatives and as a regulatory consultant in London . He holds Master ’ s degrees from Columbia University and the London School of Economics in Financial History and Regulation , in addition to a Bachelor ’ s degree from the University of Michigan — Ann Arbor .
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