From Buildings and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831-1995

by David L. Mason

This first complete history of the American thrift industry traces its development from its origins in the mid-nineteenth century through the resolution of the savings and loan crisis in the 1990s. Because S&Ls offer affordable forms of consumer finance, these institutions have helped millions of people achieve the "American Dream" of home ownership. Although the thrift crisis of the 1980s and early 1990s dealt a severe blow to the financial health and reputation of the industry, this book reveals the ways government resolved it, and how the industry was reinvented in its aftermath.

Hardcover

First published May 7, 2004

Reviews

[Frank Stein · Rating 4 out of 5]

The value of this book is not so much in recounting the big stories, like the Great Depression's effect on homeowners, and, more notably here, the S&L crisis of the 1980s. As the author notes these stories have been told so many times that there remains little to be written on them. The value of this book is placing those big stories in a long historical context.

That historical context demonstrates the almost picayune battles that dominated much of S&L history, only some of which, in retrospect, were to have grave national implications. In the 1950s much of the industry's regulatory conflicts with the Federal Home Loan Bank Board (FHLBB) concerned things like "giveaways" for opening new thrift accounts (limited to gifts of no more than $2.50 in 1956) or removing the more industry friendly FHLBB from under the control of the FHA, the NHA, and later the HHFA (finally achieved in 1955). Periodic "dividend wars" between thrifts in 1949, 1953 and other years also led regulators to jawbone for lower savings rates to protect the industry's profitability as a whole. This last battle did have consequences in 1966 when S&Ls were finally put under the thumb of Regulation Q, which had long limited the interest rates provided by commercial banks to depositors, though S&Ls were given a 0.25% bonus over other banks (as always this was done to "protect the mortgage market"). Maintaining this slight advantage soon consumed the entirety of S&L lobbying attention.

The author is right to note that the crisis of the 1980s was almost inevitable given the effects of the 1970s inflation on the S&Ls long-term fixed-income asset portfolio, as well as the flight of their deposits to money market funds not controlled by Regulation Q, but he also notes that numerous regulatory missteps certainly made the situation worse. The FHLBB decision in January 1982 to allow thrifts to use "Regulatory Accounting Principles" or RAP allowed companies to place billions of dollars of fictional "goodwill" assets on their books after mergers, and quickly write down acquired assets. This allowed many tottering banks to appear "RAP solvent" at first, but the zombie thrifts that survived on RAP for up to a decade made the eventual $160 billion federal bailout all the more painful.

Other small surprises abound here. Most notably, I didn't know that the 1980 Depository Institutions Deregulation Act, the most significant reform of the financial system since the Depression, was forced on Congress because in 1978 a Circuit Court declared ATMs and other electronic funds transfers illegal "branches" under the National Banking Act, but gave two years until implementating their ruling. Congress had to reform the system then or risk paralysis. In any case, this is a great look at the everyday battles in Washington and in boardrooms that shaped the nature of America's financial system.

[Jason Holt · Rating 5 out of 5]

Dry reading, but if you're interested in understanding the thrift industry, this book is the best around. Almost half of each page is dedicated to noting references!