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Tilted Cat Head
Administrator
Location: Manhattan, NY
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Quote:
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Originally Posted by thingstodo
Hate to say it but banks have always been in business to make money. There's just a greater awareness among the general public these days to that fact brought about, in part, by news reports. Banks, like any business, are in business to develop as many revenue streams as possible.
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Well I can't speak for the Great White North, but I can speak for the history of banking in the United States, in the 1980's President Reagan deregulated the Banking Industry. While they were to make modest profits, they were not nickel and diming their customers. A child could open a savings account without fear that monthly service charges would wipe that out in short order. Open a bank account in a bank and you'll find that your $100 will evaporate in just a few months vis a vie fees.
Quote:
The Reagan Deregulation Program
Federal requirements that set maximum interest rates on savings accounts were phased out. This eliminated the advantage previously held by savings banks.
Checking accounts could now be offered by any type of bank.
All depository institution could now borrow from the fed in time of need, a privilege that had been reserved for commercial banks. In return all banks had to place a certain % of their deposits in the fed. This gave the FED more control and stabilized state banks.
Garn - St. Germain Act of 1982 allowed savings banks to now issue credit cards, make non residential real estate loans and commercial loans; actions previously only allowed to commercial banks.
The Effect of Deregulation - The S&L Crisis
Deregulation practically eliminated the distinction between commercial and savings banks.
Deregulation caused a rapid growth of savings banks and S&L's that now made all types of non homeowner related loans. Now that S%L's could tap into the huge profit centers of commercial real estate investments and credit card issuing many entrepreneurs looked to the loosely regulated S&L's as a profit making center.
As the eighties wore on the economy appeared to grow. Interest rates continued to go up as well as real estate speculation. The real estate market was in what is known as a "boom" mode. Many S&L's took advantage of the lack of supervision and regulations to make highly speculative investments, in many cases loaning more money then they really should.
When the real estate market crashed, and it did so in dramatic fashion, the S&L's were crushed. They now owned properties that they had paid enormous amounts of money for but weren't worth a fraction of what they paid. Many went bankrupt, losing their depositors money. This was known as the S&L Crisis.
In 1980 the US had 4,600 thrifts, by 1988 mergers and bankruptcies left 3000
. By the mid 1990's less than 2000 survived.
The S&L crisis cost about 600 Billion dollars in "bailouts." This is 1500 dollars from every man woman and child in the US.
In summary, the S&L crisis was caused by deregulation which led to high interest rates that then collapsed. Other causes included inadequate capital and defrauding shorthanded government regulatory agencies (less regulators and inspectors).
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