Thrift Institution

Thrift institutions ?³ Savings associations ?³Savings cambers ?³Credit unions First created in the early 1800s in response to the technical banks¡¦ failure to adequately serve the needs of individuals requiring borrowed funds to purchase homes. Similar to commercial banks, they provide important residential mortgages and other lending function to households. Insert fig 12.1 The saving associations made long full term residential mortgages usually backed by the short-term deposits of minuscular savers. For most of the post-World War II period the upward sloped yield curve meant that the rate of long-term mortgages exceeded the rates they compensable on the short-term deposit liabilities. During the October 1979 and October 1982 period, the Federal Reserve radically changed its monetary policy strategy by targeting bank militia rather than interest rates. This led to a sudden and melodramatic surge in interest rates, with rates on T-bills and bank certificates of deposits rising as high as 16 percent.

?³ short-run rates and cost of funds increased First, many saving associations face negative interest spreads, as the short-term interest expense was too high Second, they had to pay more competitive interest to go forward existing customers to prevent disintermediation, which means withdrawal of deposits from depository institutions to be reinvested elsewhere such as the money market rough-cut funds Actions taken by the saving associations: 1)On the liability side, savings association issued more market rate-sensitive liabilities such as money market deposit accounts to limit disintermediation and compete with mutual funds. 2)On the asset side, they were allowed to offer floating or adjustable-rate mortgages and, to a restrain extent, expand into consumer real estate development and commercial lending. In mid-1980s, real estate and land prices in Texas and Southwest collapsed. It was then(prenominal) followed by economic downturns in other parts of the US. Many... If you ask to get a full essay, order it on our website: Ordercustompaper.com

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