U.S. total), Florida, Illinois, Ohio, Texas and New York.
The industry's growth has been unsteady since the 1950s. It grew rapidly through the mid-1960s, when inflation and interest rates were relatively low and stable. Starting with the inflation of the mid-1960s, however, the industry first encountered disintermediation as inflation and interest rates rose, pushing depositors to place their funds in higher-yielding investment, from government bonds to real estate. This problem continued through the 1970s, prompting federal (and state) deregulation in the 1980s, which allowed savings and loans to offer higher rates to depositors. But it also opened up vast new arenas of competition, resulting in large numbers of such institutions going under. To try to stem the tide, many thrifts are merging to attain economies of scale. It is also a desirable alternative to starting new branches, and the federal government favors mergers as a way to prevent bankruptcy and still keep the institutions viable.
The savings and loan uses a number of financial instruments with which to attract depositors. Of course, the standard savings account, characterized by withdrawal on demand, has been around since the beginnings of the industry in the 1830s. Its basic rate had been governed by the federal government since 1935 through Regulation Q. Originally designed to set rates in order to prevent savings and loans (and banks) from competing with too-high and destabilizing-interest rates, the ceiling wreaked havoc on the industry in the late 1960s and 1970s when market rates of interest rose significantly. As a result, new financial instruments, such a money market funds that doubled as checking accounts, developed and drew funds away from savings accounts (disintermediation). So deregulation has eased Regulation Q and also allowed NOW accounts (interest-bearing checking accounts). In addition, money market certificates were allowed by the...