Advanced Search
MyIDEAS: Login to save this paper or follow this series

Real Interest Rates and the Savings and Loan Crisis: The Moral Hazard Premium

Contents:

Author Info

  • John B. Shoven
  • Scott B. Smart
  • Joel Waldfogel

Abstract

Real interest rates rose to historically high levels in 1980 and remained high throughout the decade. Macroeconomists attribute this phenomenon to a combination of tight monetary policy, fiscal deficits, and variable inflation rates. This paper presents preliminary evidence for an additional explanation of high real rates that is related to the decade-long crisis in the savings and loan industry. Deposit insurance, moral hazard, and regulatory forbearance provide the incentives and the means for insolvent thrifts to issue liabilities that compete with Treasury securities in the market for funds. Thus, as the magnitude of the thrift crisis grew during the 1990s, so did pressure on Treasury yields. Even if the effect of the S&L crisis on interest rates is small, the increased cost of financing the public debt adds significantly to the total costs associated with the savings and loan fiasco.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w3754.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3754.

as in new window
Length:
Date of creation: Jun 1991
Date of revision:
Publication status: published as Journal of Economic Perspectives, Vol. 6, no. 1 (Winter 1992): 155-167.
Handle: RePEc:nbr:nberwo:3754

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Plosser, Charles I., 1987. "Fiscal policy and the term structure," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 343-367, September.
  2. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, Elsevier, vol. 9(3), pages 325-352.
  3. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262611856, December.
  4. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages S151-82, July.
  5. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  6. Evans, Paul, 1987. "Interest Rates and Expected Future Budget Deficits in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(1), pages 34-58, February.
  7. Kane, Edward J, 1989. "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(4), pages 31-47, Fall.
  8. Poterba, James M. & Summers, Lawrence H., 1987. "Finite lifetimes and the effects of budget deficits on national saving," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 369-391, September.
  9. Frederic S. Mishkin, 1988. "Understanding Real Interest Rates," NBER Working Papers 2691, National Bureau of Economic Research, Inc.
  10. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 281-300, September.
  11. Kane, Edward J, 1990. " Principal-Agent Problems in S&L Salvage," Journal of Finance, American Finance Association, American Finance Association, vol. 45(3), pages 755-64, July.
  12. Bernheim, B Douglas & Bagwell, Kyle, 1988. "Is Everything Neutral?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 308-38, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kane, Edward J. & Yu, Min-Teh, 1996. "Opportunity cost of capital forbearance during the final years of the FSLIC mess," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 36(3), pages 271-290.
  2. Ramon P. DeGennaro & James B. Thomson & Robert A. Eisenbeis & ary, 1993. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Proceedings, Federal Reserve Bank of Chicago 421, Federal Reserve Bank of Chicago.
  3. Hendricks, Torben W. & Kempa, Bernd, 2009. "The credit channel in U.S. economic history," Journal of Policy Modeling, Elsevier, Elsevier, vol. 31(1), pages 58-68.
  4. Hendrickson, Jill M., 2000. "The impact of bank failures on local bank pricing decisions," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 40(3), pages 401-416.
  5. Harold M. Somers, 1992. "Deficits and Interest Rates," UCLA Economics Working Papers, UCLA Department of Economics 645, UCLA Department of Economics.
  6. Tzavalis, Elias & Wickens, M. R., 1996. "Forecasting inflation from the term structure," Journal of Empirical Finance, Elsevier, Elsevier, vol. 3(1), pages 103-122, May.
  7. Bartholdy, Jan & Boyle, Glenn W. & Stover, Roger D., 2003. "Deposit insurance and the risk premium in bank deposit rates," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(4), pages 699-717, April.
  8. repec:fth:calaec:13-97 is not listed on IDEAS
  9. Jorge A. Chan-Lau & Zhaohui Chen, 1998. "Financial Crisis and Credit Crunch as a Result of Inefficient Financial Intermediation—with Reference to the Asian Financial Crisis," International Finance, EconWPA 9804001, EconWPA, revised 24 Apr 1998.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3754. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.