Loan Industry Research Articles

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

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.

THE ORGANIZATION OF SAVINGS AND LOAN ASSOCIATIONS*

THE STUDY IS concerned with comparing organizational practices of savings and loan associations with organizational relationships and concepts as set forth in management literature. It is the first comprehensive study undertaken to perform this task relative to savings and loan associations. The results of the comparison and analysis can then be utilized by association management for purposes of evaluating, planning, or changing the current organization structure. The study is presented in two parts. The first part establishes a basis for comparison and analysis characterized by the inclusion and reliance on growth as the creator of organization problems and change. The use of a growth framework is chosen for two reasons. First, many, if not most, problems of organization are the result of growth, and, second, savings and loan associations have encountered a fast rate of growth in the past decade, and estimates of growth during the next decade indicate an even faster rate of growth. The second part then compares organization practices and policies of a selected group of associations with this framework. The associations used for the comparison were selected because of tremendous growth and because, in the opinion of persons closely associated with the savings and loan industry, these associations appear to have made a great deal of progress over the past decade. The comparison and analysis that is undertaken leads to several conclusions and recommendations. The conclusions relative to the associations studied are as follows: 1. Savings and loan associations experience the same problems of organization as do other types of business firms, but at an earlier stage in their growth and development. 2. It is possible to identify certain symptoms of organizational problems in these associations, thus enabling management to avoid or mitigate problems resulting from growth. 3. The conceptual framework, developed in Part I, can be used by individual association management to observe the existing organiza-

THE HISTORY OF SAVINGS AND LOAN IN TEXAS*

s of Doctoral Dissertations 87 erals. The final year of this period, 1936, was the last year for well over a decade in which there were more state than federal associations operating in Texas. The period from 1937 through 1945 begins with the year in which it can be said that the savings and loan industry was emerging from the depression and continues through World War II. During these years the number of associations in Texas decreased, but their assets increased. Probably more significant than the increase in assets was the improvement in the quality of assets; by 1945, reserves were high and liquidity had improved. In many respects the period from 1946 through 1953 is the most interesting period of savings and loan history in Texas. Within these years, Texas has enjoyed the highest level of building activity in its history and the savings and loan industry has experienced a corresponding growth. Many new associations have been organized and these have been permanent-stock institutions. The year 1953 was the first one since 1936 in which the number of state associations exceeded federals in Texas. To a large extent, an understanding of the savings and loan industry presupposes an understanding of the laws relating to their activities. Part of this study is devoted to a treatment of both federal and state laws which affect savings and loan operations. The chapter dealing with federal legislation treats both tax laws and laws which relate to