Economic Report of the President

this problem by authorizing, effective May 1, 1982, a 91-day time depositwith a $7,500 minimum denomination indexed to the 91-dayTreasury bill rate, and establishing, effective September 1, 1982, a 7-to 31-day deposit account with a $20,000 minimum denomination,also indexed to the 91-day Treasury bill rate.Following the directions given by the Garn-St Germain Act, theDIDC authorized, effective December 14, 1982, a new money marketdeposit account that can be offered by commercial banks, savings andloan associations, and mutual savings banks. In addition, the DIDGauthorized a new super NOW account, effective January 5, 1983. Neitheraccount is subject to interest rate ceilings when account balancesexceed $2,500. The DIDC also reduced to $2,500 the minimum denominationrequired on the 6-montfi money market deposits, the 91-day time deposits, and the 7- to 31-day time deposits.The introduction of NOW accounts nationwide in 1981, the authorizationof the new money market accounts at banks and thrifts,and the general phasing out of interest rate restrictions substantiallyincrease the ability of depository institutions to compete for funds.Simultaneously, various actions have been taken to allow thrift institutionsgreater flexibility in the investment of funds. The Deregulationand Monetary Control Act expands the asset powers of savingand loan associations and mutual savings banks to include consumer,corporate, and business loans. This will lead to more diversified portfoliosfor these institutions. In addition, new regulations issued bythe Comptroller of the Currency in 1981 and the Federal HomeLoan Bank Board in 1982 permit depository institutions to offer variablerate mortgages. Finally, the Garn-St Germain Act provides forFederal preemption of State laws and judicial decisions that restrictthe enforcement of due-on-sale clauses in real property loans.The Garn-St Germain Act also deals with the problems of the savingsand loan institutions discussed above. It provides capital assistanceto depository institutions that have suffered earnings and capitallosses resulting from regulatory restraints on their assets and liabilities.The assisted institutions issue capital investments, called "networth certificates," which the insuring agencies purchase with promissorynotes. This increase in net worth reduces the likelihood of insolvenciesarising from losses created by holdings of old, fixed-ratemortgages. As market rates of interest fall, and the earnings of thesedepository institutions improve, the net worth certificates will be retired.Legislation following the banking collapse of the 1930s tended toprevent competition among financial institutions and created a complexand often counterproductive labyrinth of financial regulations.Recent legislation and regulatory changes have begun to reverse this118