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May 4-October 15, 1982: ’Garn-St. Germain Depository Institutions Act’ to Revitalize Housing Industry Becomes Law

Rep. Fernand J. St. Germain (D-RI), with 28 co-sponsors, introduces HR 6267, the “Net Worth Guarantee Act” officially entitled “A bill to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” [Library of Congress, 5/19/2008] As introduced, the bill would create a fund for loans to those troubled banks and savings and loans institutions that would have to be put into receivership if their condition deteriorates to a small degree from the bill’s qualifying requirements. The provisions are as follows:
bullet Amendments to the Federal Deposit Insurance Act (which regulates the Federal Deposit Insurance Corporation, FDIC), the National Housing Act (which regulates the Federal Home Loan Bank Board, FHLBB), and the Federal Credit Union Act (the National Credit Union Administration Board, NCUAB) so that the regulated bodies can guarantee the net worth of qualified insured institutions.
bullet Requirements that a qualifying depository institution be one that is threatened with insolvency, as measured by very low net worth and a recent trend of losses; that the institution be one that mainly serves the residential mortgage industry, as measured by the share of its loans or other assets that are held in or collateralized by residential mortgages or real estate; and that it continue in this service under the net worth guarantee, as measured by the share of its new deposits that it devotes to certain types of mortgages.
bullet Rules for determining the initial amount of the guarantee, and for either extending or phasing out the assistance to a given institution. Extensions after two years are to be contingent upon a showing that “certified continued earnings losses are caused by general market conditions and not by the actions of the institution.”
bullet Creation of a Net Worth Guarantee Account in the US Treasury in the amount of $8.5 billion to cover the payment of any guarantees.
bullet A sunset date for new extensions of guarantees.
bullet An oversight process in which the three bank regulating bodies report quarterly to Congress on their activities in granting guarantees, and the comptroller of the currency provides semiannual audits. [Library of Congress, 5/14/2008; Library of Congress, 5/14/2008]
Fate in the House - The Net Worth Guarantee Act passes the House of Representatives on May 20, 1982, with amendments that extend the coverage to qualifying State-chartered commercial banks, and qualifying national banks whether or not they are members of the FDIC; that add investment in residential housing co-operative stock and mortgages on multifamily rental projects to the qualifying activities for sustaining the guarantee; that alter the exit path from the program; that add compliance with community credit provision requirements under the Community Reinvestment Act of 1977; that make the Treasury senior to holders of existing subordinated debt of any guaranteed bank that later winds up in receivership; and that clearly give the sunset date as September 30, 1984. [Library of Congress, 5/14/2008; Library of Congress, 5/14/2008; Library of Congress, 5/14/2008]
Eventual Fate - With substantial amendments that address other banking regulatory issues besides the net worth of depository institutions, the bill finally passes the Senate under several short titles, of which the primary is “Depository Institutions Amendments of 1982,” superseding S.2879 sponsored by Sen. E.J. “Jake” Garn. The bill is enacted with the signature of President Ronald Reagan on October 15, 1982 as the Garn-St. Germain Depository Institutions Act of 1982. [Library of Congress, 5/14/2008]

Entity Tags: Charles Schumer, Steny Hoyer, Fernand J. St. Germain

Timeline Tags: Global Economic Crises

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