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Context of '1966-1979: Market Interest Rates Fluctuate with Increasing Intensity; S&Ls Experience Difficulty with Each Interest Rate Rise'

This is a scalable context timeline. It contains events related to the event 1966-1979: Market Interest Rates Fluctuate with Increasing Intensity; S&Ls Experience Difficulty with Each Interest Rate Rise. You can narrow or broaden the context of this timeline by adjusting the zoom level. The lower the scale, the more relevant the items on average will be, while the higher the scale, the less relevant the items, on average, will be.

The Federal Savings and Loan Insurance Corporation (FSLIC) is established. It is administered by the Federal Home Loan Bank Board (FHLBB), which was formed by the Federal Home Loan Bank Act of 1932. The FSLIC is created as part of the National Housing Act of 1934, New Deal legislation passed amid the ongoing Great Depression in order to make housing and home mortgages more affordable. The act, which also establishes the Federal Housing Administration (FHA), is signed into law by President Franklin D. Roosevelt. Upon its creation, the FSLIC is assigned a capital stock of $100 million. All federal savings and loan associations (S&Ls) will be required to apply for insurance through the FSLIC; other building and loan associations whose capital is not impaired are also allowed to apply. The FSLIC is given certain regulatory powers over insured institutions, requiring each institution to accumulate reserves over several years, and assesses an annual insurance premium, calculated at 0.25 percent of the total amount of all accounts of insured shareholders or members, plus any creditor obligations. The FSLIC will routinely suspend insurance premiums whenever its reserve fund is greater or equal to five percent of all insured accounts and creditor obligations of all insured institutions. [Courier News, 7/28/1934]

Entity Tags: Franklin Delano Roosevelt, Federal Housing Administration, Federal Savings and Loan Insurance Corporation, Federal Home Loan Bank Board

Timeline Tags: Global Economic Crises

Fluctuating market interest rates cause many savings and loan associations (S&Ls) to struggle financially. The problems stem from changes made to the Federal Reserve’s “Regulation Q” policy in 1966. Regulation Q was created in accordance with the 1933 Banking Act, with the goal of prohibiting banks from paying interest on deposits in checking accounts. By limiting speculative behavior by banks competing for customer deposits, banks would be prevented from seeking risky means of profit to be able to pay the interest on said deposits. Under the 1966 changes, interest rate ceilings are imposed on thrift institutions, including both mutual savings banks and S&Ls. Recently, the volume of funds raised by business firms in the financial markets has risen sharply relative to the funds by households in the form of residential mortgages. The slowing in the rate of increase in residential mortgage credit is especially pronounced at thrift institutions. The changes made to the Regulation Q policy reflect policymakers’ interpretation of this decline. [Commercial & Financial Chronicle, 4/6/1967; Gilbert, 2/1986 pdf file] Since the interest rate ceilings prevent S&Ls from paying competitive interest rates on deposits, every time the market interest rates rise, substantial amounts of funds are withdrawn by consumers for placement in other financial instruments with higher rates of return, such as money market funds. This process of deposit withdrawal, known as disintermediation, and the subsequent deposit influx when rates rise, known as reintermediation, leaves S&Ls highly vulnerable. S&Ls are also restricted at this time by not being allowed to enter into any business venture other than accepting deposits and granting home mortgage loans. As money market funds emerge as a source of competition for S&L deposits, these restrictions become increasingly challenging for S&Ls to deal with. [Federal Deposit Insurance Corporation, 12/20/2002]

Entity Tags: US Federal Reserve, 1933 Banking Act, Federal Deposit Insurance Corporation, Regulation Q

Timeline Tags: Global Economic Crises

The 23rd largest commercial bank in the country gets a package of $1.5 billion in financial assistance, in exchange for close supervision of its operations by the Federal Deposit Insurance Corporation (FDIC). The aid consists of a $1 billion bank line of credit from the Federal Reserve, a $325 million loan from the FDIC written as a subordinated note to be paid off after five years and interest-free for the first year, and $175 million in other notes to a group of commercial banks. The following year, as regulators and the banking industries search for a response to a rising incidence of bank insolvency, the First Pennsylvania agreement will be seen by some as a model. [Wall Street Journal, 6/8/1981]

Entity Tags: Federal Deposit Insurance Corporation, First Pennsylvania Bank, Federal Reserve Board of Governors

Timeline Tags: Global Economic Crises

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