Word: thrifts
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...nation's thrift institutions-savings and loans and savings banks-are in perhaps the shakiest shape of all. Andrew Carron, a Brookings Institution economist, estimates that the 4,000 U.S. thrifts will lose $9 billion between 1981 and 1983, cutting their collective net worth in half, because they are paying high interest rates to attract deposits but collecting low interest on many old mortgage loans. Says New York State Bank Superintendent Muriel Siebert: "I can see 600 to 700 thrifts going down the drain this year, and maybe another 1,100 in 1983." The prospect appears to be causing...
...year mortgages that were created years ago, the savings institutions were sometimes paying customers 16% or more for new two- or three-year deposits. Making matters worse was the fact that as interest rates have risen during the past two years, many investors have pulled their cash out of thrift institutions and poured it into money-market funds or other places where they could get a greater return. In most months of 1981, withdrawals exceeded deposits at S and Ls and mutual savings banks...
There are fears that any new surge in interest rates, which many economists predict will occur perhaps as early as the summer, could eliminate one-third of the U.S. thrift industry. That would strain the Government's capacity to engineer the rescue mergers needed to absorb insolvent S and Ls. Says an official at the Federal Reserve: "If rates start to turn up again, then 1982 will be the crunch year. A lot of existing thrifts simply won't make...
...weak thrift institutions have been fighting deregulation out of fear that they would be unable to compete against banks and the new so-called financial supermarkets such as Merrill Lynch and Sears, Roebuck & Co., which offer every service from money-market accounts to insurance. Savings and loan lobbyists in Washington, for example, have been waging a rear-guard action to stop the deregulation of interest rates. In October they blocked a plan to lift the level that they pay on passbook accounts from 5.5% to 6%. The thrifts argued that such a move would cost them $500 million annually...
Many savings and loan associations, which have always been the mainstay of home financing, are also hurting. To keep their deposits, these thrift institutions must pay as much as 16% interest, though many of the old mortgages on their books earn them less than 10%. As a result, an estimated 85% of all S and Ls are losing money. Administration officials are confident that most of the S and Ls have large enough capital reserves to tide them over until rates fall. But some financial experts are not so sure. Says the president of one of the largest U.S. commercial...