金融市场与机构(第六版)教师手册 M19_MISH1438_06_IM_C19

Chapter 19
Savings Associations and Credit Unions
Mutual Savings Banks
Savings and Loan Associations
Mutual Savings Banks and Savings and Loans Compared
Savings and Loans in Trouble: The Thrift Crisis
Later Stages of the Crisis: Regulatory Forbearance
Competitive Equality in Banking Act of 1987
Political Economy of the Savings and Loan Crisis
Principal-Agent Problem for Regulators and Politicians
Case: Principal-Agent Problem in Action: Charles Keating and the Lincoln Savings
and Loan Scandal
Savings and Loan Bailout: Financial Institution Reform, Recovery, and Enforcement Act of 1989 The Savings and Loan Industry Today
Number of Institutions
S&L Size
S&L Assets
S&L Liabilities and Net Worth
Capital
Profitability and Health
The Future of the Savings and Loan Industry
Credit Unions
History and Organization
Sources of Funds
Uses of Funds
Advantages and Disadvantages of Credit Unions
The Future of Credit Unions
Overview and Teaching Tips
Chapter 19 explores thrift institutions, which provide financial services to individuals and households.
A brief history of mutual savings banks and savings and loan associations is given in the first two sections of this chapter. Students get a clear background of the history that shaped the foundation of these institutions. One main difference between the two is the ownership structure. The chapter concentrates more on savings and loans. It discusses the early crises of the S&Ls, which caused turmoil for millions of people with money in these institutions. For an excellent example of the nature of the S&L crisis, refer students to the case dealing with Charles Keating and the Lincoln Savings and Loan Scandal.
110 Mishkin/Eakins •Financial Markets and Institutions, Sixth Edition
In 1989, the Bush Administration bailed out the failing Savings and Loans. New restrictions were imposed on thrift institutions so this problem would not occur again. The S&L industry today has a smaller number of institutions since many merged or failed. Many of the loans are now secured by real estate to insure repayment. What lies ahead for S&Ls are gradual changes in the industry to overlap their services with commercial banks.
Another type of thrift institution is the credit union which lends and provides services to its members who are consumers, not businesses. A description of the history of credit unions and its membership is in this section. Credit unions won over employers by offering their employees banking facilities closer to their place of work. Common bond membership is a major feature that distinguishes credit unions from other financial institutions. The idea means that only members of a particular occupation, organization, or association are permitted to join the credit union. This type of membership does limit credit unions from diversifying their risks. Since credit unions are nonprofit and tax exempt, they can offer lower fees for services than banks usually would offer customers. Most of the money in credit unions comes directly from customer savings and share draft accounts. The advantages of credit unions outweigh the disadvantages, as demonstrated by their growth and popularity.
Answers to End-of-Chapter Questions
1. All of the depositors at a mutual bank are owners of the firm. Instead of receiving interest payments,
they receive dividend income.
2. Because most shareholders do not own a very large percentage of the firm, it is not cost-effective for
them to provide management oversight.
3. The primary assets of S&Ls are loans, for the most part mortgage loans.
4. Deregulation, regulatory forbearance, and a lack of examiners led to the thrift crisis.
5. Because depositors were insured by the government against losses, they had no incentive to monitor
bank management.
6. Passage of the FIRREA, which banned risky investments, mandated that a majority of savings and
loan assets be in mortgage loans, and increased penalties for fraud, effectively stopped the losses.
7. The net worth ratio is the most common measure of capital adequacy.
8. Net income has been increasing.
9. Credit unions are mandated to provide financial services to consumers rather than corporate
customers.
10. CUNA encourages the formation of credit unions. It provides support for existing credit unions in the
form of technical aid. It also sponsors a number of affiliations that are useful to credit unions.
11. Only people living in a certain geographic area or employed in a specific business or by a particular
employer are eligible for membership in a credit union.
12. The tax-exempt status of credit unions lowers their costs so they are able to offer higher interest rates
on deposits, lower rates on loans, and less expensive fees on bank services than commercial banks can.
Chapter 19 Savings Associations and Credit Unions 111 13. The common bond membership rule restricts membership in any particular credit union so that the
average size of credit unions is substantially lower than for commercial banks.
14. Because credit unions are mutually owned, customers obtain shares when they make deposits. Hence
a share account is the equivalent of a savings account (but one that pays dividends rather than interest),
a share certificate is equivalent to a certificate of deposit, and a share draft is equivalent to a check.
15. The main advantages of credit unions are employer support, tax-exempt status, and strong trade
associations.
16. Regulatory forbearance is a dangerous strategy because once a bank is insolvent it has even stronger
incentives to commit moral hazard and take on excessive risk. It has little to lose if its risky activities go sour, but has a lot to gain if the risky activities pay off. The resulting excessive risk taking makes it more likely that the deposit insurance agency will suffer large losses.
17. The S&L crisis did not occur until the 1980s because interest rates stayed low before then, so S&Ls
were not subjected to losses from high interest rates. Also, the opportunities for risk taking were not available until the 1980s, when legislation and financial innovation made it easier for S&Ls to take on more risk, thus greatly increasing the adverse selection and moral hazard problems.
18. The FIRREA legislation provided funds for the S&L bailout, created the Resolution Trust Corporation
to manage the resolution of insolvent thrifts, eliminated the Federal Home Loan Bank Board and gave its regulatory role to the Office of Thrift Supervision, eliminated the FSLIC and turned its insurance role and regulatory responsibility over to the FDIC, imposed restrictions on thrift activities similar to those in effect before 1982, increased the capital requirements to those adhered to by commercial banks, and increased the enforcement powers of thrift regulators.
19. If political candidates receive campaign funds from the government and are restricted in the amount
they spend, they will have less need to satisfy lobbyists to win elections. As a result, they may have greater incentives to act in the interest of taxpayers (the principals), and so the political process might improve.
20. The S&L crisis can be blamed on the principal-agent problem because politicians and regulators (the
agents) have not had the same incentives to minimize costs of deposit insurance as do the taxpayers (the principals). As a result, politicians and regulators relaxed capital standards, removed restrictions on holdings of risky assets and engaged in regulatory forbearance, thereby increasing the cost of the S&L bailout.。