ciations to attract funds quickly was
reduced. In addition, the act re-
quired higher capital-to-asset ratios at
the remaining institutions.1 This also
slowed deposit growth because most
associations chose to increase their
capital ratios by reducing deposits
rather than by increasing capital.
More recently, a significant percent-
age of the deposits at insolvent asso-
ciations closed by the Resolution
Trust Corporation (RTC) was pur-
chased by commercial banks and left
the S&L industry.
As a result, S&L market share of fi-
nancial institutions slid from a peak
of 16% in 1984 to 15% by year-end
1988 and then more rapidly to only
11% by midyear 1990. This wiped
out the gains of 30 years of growth. It
is not unreasonable to project that by
year-end 1990, the market share of
S&Ls will not be greatly different
from what it was 35 years earlier in
the mid-1950s, when the associations
began their rapid growth.
|
⅝⅝⅝MI⅝∣WW |
½ ⅛ ` |
— . | |||
|
1950 |
1960 |
1970 |
1980 |
1990c | |
|
Total residential mortgages | |||||
|
45 |
142 |
298 |
978 |
2,493 | |
|
% Distribution | |||||
|
S&Lsa |
29 |
39 |
41 |
45 |
27 |
|
Commercial banks |
21 |
14 |
14 |
17 |
16 |
|
Mutual savings banks |
10 |
15 |
14 |
7 |
5 |
|
Life insurance companies |
19 |
18 |
9 |
2 |
1 |
|
Households |
17 |
7 |
8 |
6 |
6 |
|
Government |
3 |
5 |
7 |
8 |
6 |
|
Mortgage poolsb |
- |
- |
1 |
9 |
31 |
|
Other |
1 |
2 |
___________6 |
6 |
8 |
|
Total |
100 |
100 |
100 |
100 |
100 |
|
SOURCE: Board of Governors of the Federal Reserve System, Flow of Funds Accounts, various years. aIncIudes mortgage pools. bExcIudes savings and loan associations. cMidyear. | |||||
Along with declines in market share,
the industry has also seen the num-
ber of associations decline. At year-
end 1989, there were near 2,900
S&Ls in operation, and by year-end
1990, the number of associations may
be below 2,500.2 This number would
be nearly one-half the number of
associations in 1980 and only about
one-third the number in 1960, when
nearly 6,500 S&Ls were in operation.
Of course, during most of the period
of decreases in the number of associa-
tions, total S&L assets were increasing
rapidly, so that through 1988 the
remaining associations were larger,
on average. But since 1988 total assets
have declined faster than the total
number of associations, as propor-
tionately more larger associations
have become insolvent and resolved.
As a result, the average asset size of
the remaining associations has begun
to decline.
. . . But not shrinking services for
customers
The shrinking of the S&L industry
does not necessarily imply an equal
shrinking of the services it tradition-
ally provided, namely, residential
mortgage lending and savings deposit
gathering.
In fact, S&Ls have been reducing
their share of the residential mort-
gage market for some time with little
discernible negative effect on mort-
gage borrowers. In mid-year 1990,
S&Ls held 27% of all mortgages.3 As
can be seen from Table 2, this repre-
sents a decline of 40% from the 45%
market share in 1980 and is the low-
est percentage penetration since the
1940s.
This decrease in mortgage activity
reflects three developments in the
industry. First, S&Ls shifted into
other kinds of lending, such as con-
sumer loans and commercial mort-
gages, in response to the new powers
granted them by deregulation in the
early 1980s. Second, as noted earlier,
the growth in their overall asset base
slowed and then turned negative.
Third, residential mortgage lending
became more attractive to commer-
cial banks and life insurance compa-
nies with the advent of mortgage-
backed securities, which, unlike
whole mortgages, are marketable.
It is difficult to identify precisely the
institutions that took up the slack in
mortgage investment from the avail-
able data, because the ownership of
mortgages that are pooled and securi-
tized cannot be broken out for inves-
tors other than S&Ls. Such mort-
gage-backed securities have grown
rapidly in recent years and now ac-
count for more than one-third of all
residential mortgages outstanding.
At the same time that S&Ls have de-
creased their residential mortgage
activity, they have been facing new
competition for savings deposits,
largely from money market funds.
Thus, the diminished role of S&Ls is
likely to result primarily in a reshuf-
fling of their activities to other types
of institutions. This is not to say that
there may not be some disruptions
and additional search required by
traditional S&L customers during the
transition period, but other sources
of these services will be out there.