Beyond the Savings and Loan Crisis

In the savings and loan association crisis, regulation usually is held to be the culprit. However, the problem is more deeply rooted—the business definition of a thrift no longer is applicable. If spread lending is separated from customer service, as many thrifts are trying to do, a business will not be profitable in an efficient market. The problem is not that the Southwest region is troubled, but that thrifts were trying to make easy money through market banking. Healthy thrifts should be encouraged to become banks; the Bush Administration has taken a step in that direction by putting the Federal Savings & Loan Insurance Corp. under Federal Deposit Insurance Corp. management. The greatest weakness in the government's program is that it perpetuates the distinction between banks and thrifts. The thrift business no longer can be justified as a separate industry from banking; the worst thrifts must close, and the best must enter the banking system to be governed by bank regulations.