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Financial Regulation as a Control System Problem: The Case of the Savings & Loan Industry

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  • F. E. Balderston

    (The University of California, Berkeley)

Abstract

Operations and regulation of the savings and loan industry are evaluated in terms of four subsystems: (1) market structure, in which the market environment and the policies of the individual firm are important determinants, but in which, the regulatory authorities have licensing power with respect to the number of firms and branch offices; (2) transactions, which divides into transactions in the capital inflow, or savings, market, and in the capital placement, or lending, market; (3) liquidity, in which the firm's cash flows and liquidity requirements are augmented by the Federal Home Loan Bank system; and (4) safety, in which, the strength of the housing market, the portfolio and reserve position of tie individual institution, and insurance of accounts by the FSLIC are determining factors. The paper discusses the interplay between environment, executive decision and regulatory influence in each of these subsystems and also points to interactions between the subsystems.

Suggested Citation

  • F. E. Balderston, 1966. "Financial Regulation as a Control System Problem: The Case of the Savings & Loan Industry," Management Science, INFORMS, vol. 12(10), pages 417-432, June.
    • Handle: RePEc:inm:ormnsc:v:12:y:1966:i:10:p:b417-b432
    DOI: 10.1287/mnsc.12.10.B417
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    Cited by:

    1. Thierry Warin & Robert E. Prasch, 2013. "Systemic Risk in the Financial Industry: “Mimetism” for the Best and for the Worst," CIRANO Working Papers 2013s-29, CIRANO.
    2. Robert E. Prasch & Thierry Warin, 2012. "Moral Hazard and the Mounting of a Crisis: A U.S. Narrative," CIRANO For discussion... 2012dt-03, CIRANO.

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