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Ignoring Economics In Dealing With The Savings And Loan And Commercial Banking Crisis

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  • R. DAN BRUMBAUGH
  • ROBERT E. LITAN

Abstract

This paper describes how the government has largely ignored economics in its recent attempts to deal with the deterioration of federally insured depository institutions. The most recent example was the Financial Institutions Recovery, Reform, and Enforcement Act (FIRREA) of 1989. Well documented and widely distributed studies have pointed out the decline of commercial banks. However, the FIRREA completely ignored commercial banks. The paper discusses the pervasive regulatory laxity and forbearance that existed toward banks during the 1980s despite the consequences of similar regulatory behavior toward savings and loans. The paper also shows how the FIRREA's major provisions regarding savings and loans ignore economic analyses. The paper discusses the implications of economic analysis for more appropriate government responses to the continuing deterioration of depositories.

Suggested Citation

  • R. Dan Brumbaugh & Robert E. Litan, 1991. "Ignoring Economics In Dealing With The Savings And Loan And Commercial Banking Crisis," Contemporary Economic Policy, Western Economic Association International, vol. 9(1), pages 36-53, January.
    • Handle: RePEc:bla:coecpo:v:9:y:1991:i:1:p:36-53
    DOI: 10.1111/j.1465-7287.1991.tb00312.x
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    References listed on IDEAS

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    1. George G. Kaufman, 1990. "Make FDIC Insurance Redundant," Challenge, Taylor & Francis Journals, vol. 33(1), pages 13-17, January.
    2. Barth, James R & Bartholomew, Philip F & Bradley, Michael, 1990. "Determinants of Thrift Institution Resolution Costs," Journal of Finance, American Finance Association, vol. 45(3), pages 731-754, July.
    3. Robert A. Eisenbeis, 1990. "Restructuring Banking," Challenge, Taylor & Francis Journals, vol. 33(1), pages 18-21, January.
    4. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
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    Cited by:

    1. William James Adams & Joe Peek & Eric Rosengren, 1993. "Business failures in New England," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 33-44.
    2. James R. Barth & R. Dan Brumbaugh Jr., "undated". "Financing Prosperity in the Next Century, The Changing World of Banking: Setting the Regulatory Agenda," Economics Public Policy Brief Archive 8, Levy Economics Institute.
    3. METAXAS, Theodore & TROMPATZI, Georgia, 2015. "From The Bank Panic Of 1907 To The Great Depression Of 1929 And The Savings And Loan Crisis Of The 1980s: Comparative Analysis And Lessons For The Future," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 15(1), pages 79-96.

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