TAKING STOCK IN THRIFTS
The thrift industry has changed dramatically since the early 1980s. High and volatile interest rates had resulted in catastrophic losses for an industry which for many years had borrowed short and lent long. The need for new legislation to permit the industry to escape from its economic dilemma was obvious. The Depository Institutions Deregulation Act of 1980 and the Garn-St. Germain Act of 1982 together became the cornerstones of a new thrift industry, which is now permitted to lend on a much shorter term and/or adjustable rate basis and borrow on a much longer-term basis than was previously permitted.
This new permissiveness, combined with declining interest rates, has allowed the industry to move quickly into a restructuring phase. Although most thrifts continue to be more interest rate sensitive on the liability than on the asset side of the balance sheet, the tremendous mismatches of the past have diminished considerably. Meanwhile, the need for capital has also resulted in a shift toward the stock form of ownership for the thrift industry which like the life insurance industry, had been principally made up of mutual institutions.
When interest rates were relatively low and stable, and long-term rates exceeded short rates, borrowing short and lending long was not a problem for the thrift industry.