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Garn-St. Germain Depository Institutions Act

Definition

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
heinonline.org [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 …



Q&A About Garn-St. Germain Depository Institutions Act


What is another way that a due on sale clause can interfere with real estate investing?

It can also interfere with sellers extending financing to buyers by using wraparound mortgages, also called all inclusive mortgages, all inclusive deeds of trust, or all inclusive trust deeds. Any of these arrangements triggers a due on sale clause in an existing mortgage and thus makes it possible for lenders to call loans when they are transferred. If a property has such clauses and is transferred without being paid off, banks may foreclose if buyers cannot immediately pay off their loans.

How did this act affect banks and savings institutions?

This act allowed banks and savings institutions to compete more readily in the money market, it got rid of interest rate ceilings that they once had abide by, authorized them to make commercial loans and gave federal agencies authority over approving bank acquisitions.

How does a due-on-sale clause interfere with real estate investing?

A due on sale clause can make it difficult for property owners to sell their property and have the buyer take over an existing loan rather than paying off that loan as part of the sale.

What is the purpose of a due-on-sale clause?

A due-on-sale clause allows the lender to call the loan if the property used as collateral for the loan is sold.

What is the Garn-St. Germain Depository Institutions Act?

The Garn-St. Germain Depository Institutions Act was 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.

Who bailed out 747 Savings & Loan Associations?

The S&L crisis was one of largest government bailouts costing approximately 124 billion dollars which came from taxpayers' pockets. The bailout helped 747 Savings & Loan Associations but failed partly due to Garn-St. Germain Depository Institutions Act .