INSOLVENCY AND RISK‐TAKING IN THE THRIFT INDUSTRY: IMPLICATIONS FOR THE FUTURE

James Barth, R. Dan Brumbaugh, Jr., Daniel Sauerhaft and George H. K. Wang

Contemporary Economic Policy, 1985, vol. 3, issue 5, 1-32

Abstract: This paper puts the current problems facing the thrift industry, Federal Home Loan Bank Board, and Federal Savings and Loan Insurance Corporation into historical perspective. It discusses the development of federal deposit insurance and regulation of depository institutions. The paper discusses causes of the recent financial difficulties faced by thrift institutions and the policy responses to those problems. It then examines the effect of the recent 511 thrift failures on the risk‐taking behavior of institutions and the Bank Board's policy responses to risk‐taking. Finally, the paper suggests possible responses to the large and growing number of insolvent institutions that have an economic incentive to pursue extremely risky portfolio opportunities.

Date: 1985
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