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Context of 'April 1, 1980: President Carter Signs the ‘Depository Institutions Deregulation and Monetary Control Bill’ into Law'

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In a message to the US Congress, President Jimmy Carter again outlines his position on the non-proliferation of nuclear weapons (see 1975-1976). Carter threatens to cut off US supplies of nuclear fuel and technology to countries that do not accept international safeguards on their use. However, following the Soviet invasion of Afghanistan in late 1979, the Carter administration will turn a blind eye to Pakistan’s nuclear program (see December 26, 1979). (Armstrong and Trento 2007, pp. 62, 239)

The US Federal Reserve, under recent Carter appointee Paul Volcker, declares that it will begin a major policy shift by tightening the money supply. Its main method of doing so will be significant increases in the interest rate. (Campbell 2005, pp. 194-195)

Efforts are made to improve the interest rate environment in which banks, and especially thrifts, have to operate, such as the Monetary Control Act of 1980 (see April 1, 1980), and numerous changes in the regulatory frameworks at the state and federal level. Despite all this activity, it remains the case that interest rates on sources of funds to the thrift industry lags behind those that could be paid by commercial banks and nonbanks in new vehicles such as money market accounts. Consequently, thrift bankers find it increasingly difficult to keep their businesses supplied with enough funds to sustain a profitable rate of new lending. The industry therefore cannot avoid a period of higher than historical failure levels and voluntary mergers and departures from the industry. (Brumbaugh et al. 1987)

President Jimmy Carter signs the Depository Institutions Deregulation and Monetary Control Bill into law. Carter says the bill will “help control inflation, strengthen our financial institutions and help small savers.” Among the bill’s main provisions are raising of ceilings on the interest paid to small savers and a substantial enhancement to the monetary control powers of the nation’s central bank, the Federal Reserve System. The main provisions of the law:
bullet Permanently overrides state-imposed ceilings on mortgage rates unless states act within three years to reenact them.
bullet Wipes out for three years interest rate limits on agricultural and business loans of more than $25,000.
bullet Increases to 15 percent from 12 percent the maximum interest rate on credit union loans, with even higher rates possible for periods up to 18 months.
bullet Continues use of credit union share drafts, bank’s automatic transfer accounts and remote service units.
bullet Simplifies truth-in-lending laws.
bullet Requires lenders to repay consumers for overcharges.
bullet Authorizes federal savings and loan associations to expand their consumer loan and credit card operations and allows them to offer trust services.
bullet Gives the Federal Reserve a more effective reach by establishing a universal and uniform system of banking reserves. Over an eight year period all depository institutions, including savings and loan associations and mutual savings banks, will be encouraged to post reserves with their chapter Federal Reserve banks which will be 12 percent of all transactions as opposed to the tiered structure at 16 1/4 percent, leaving those that left the Federal Reserve System prior to the enactment of this law at a competitive disadvantage until they themsleves register their funds with the Federal Reserve. (Farnsworth 4/1/1980, pp. 1)

Former US president Jimmy Carter brokers a truce between Bosnian Serbs and Muslims. The truce is set to last four months and does, but then fighting resumes and intensifies. (US Department of State 12/6/1995; Time 12/31/1995)


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