resulted, in great part, from home owners defaulting on long term, high interest mortgages issued in the late 1970s.5
There was, however, another factor involved in the problems of the thrift industry that both the Bush Administration and most members of Congress were reluctant to mention because to do so would cast doubt on one of the most sacrosanct of current government policies deregulation.6 It was quite possible even probable, however, that deregulation was either or both (1) an underlying cause, to some extent, of each of factors more generally cited as causes of the thrift industry problem, or (2) a primary cause of the problems being experienced by the industry.7
In late 1979, work was initiated in the Congress to overhaul the country's banking and financial regulatory structure. The Depository Institutions Deregulation and Monetary Control Act of 1980 was enacted, and this legislation was followed two years later by the complementary Depository Institutions Act of 1982. Both the regulatory structure, and the structure of the country's financial system were transformed through the implementation of the two banking decontrol acts. Among other things, the acts removed most interest rate ceilings (the exception being commercial demand deposits), and the prohibition against the paying of interest on checkable accounts was lifted.
The banking decontrol acts also expanded the types of financial institutions (1) for which mandatory membership in the Federal Reserve System was required, or (2) to which regulation by the System was extended.8 As a result, many state chartered commercial banks and most thrift institutions were required to maintain reserve accounts with the System, and, as well, these institutions gained access to the System services.
In the summer of 1989 (when the S&L crisis came to the attention of the general public), the banking and finance industry was well into the eighth year of deregulation....