Garn-St. Germain Depository Institutions Act


The Garn–St Germain Depository Institutions Act of 1982 is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans. It is disputed whether the act was a mitigating or contributing factor in the savings and loan crisis of the late 1980s.

What is 'Garn-St. Germain Depository Institutions Act '

A law enacted by Congress in 1982 to enable banks and other savings institutions to compete more readily in the money market. It got rid of the interest rate ceiling that they once had to abide by, authorized them to make commercial loans and gave the federal agencies the ability to approve bank acquisitions.

Explaining 'Garn-St. Germain Depository Institutions Act '

This act was one of the contributing factors of the Savings and Loan Crisis. The S&L crisis was one of the largest government bailouts in U.S. history costing approximately $124 billion. The bailout came to help the 747 savings and loan associations in the U.S. but failed, partly due to the Garn-St. Germain Depository Institutions Act.

Further Reading

The Garn-St Germain Depository Institutions Act of 1982: The Impact on Thrifts [PDF]
During the 1970s the US economy was plagued by high inflation. At the time banks and thrift institutions were restricted from raising their deposit interest rates. Fed Regulation Q prohibited banks from paying interest on demand deposits while additional restrictions constrained rates paid on other deposits. These institutions experienced disintermediation as households shifted their deposits to unconstrained money market mutual funds, which offered more attractive rates. Corporations increasingly adopted deposit alternatives, such as repurchase …

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