Economic Report of the President

holdings of consumer and business loans, which have shorter maturitiesthan mortgages.PRESSURES FOR COMPREHENSIVE LEGISLATIONIn the late 1970s there was a growing realization throughout thefinancial community that despite piecemeal modernization, regulationsaffecting depository institutions needed more sweeping reform.The regulatory structure no longer was satisfying its original objectives.Instead, it was creating inefficiencies and inequities. It even diminishedthe effectiveness of monetary policy as banks left the FederalReserve System. Pressures from various sources finally resulted ina compromise bank reform bill, the Depository Institutions Deregulationand Monetary Control Act of 1980.Under this law, interest rate ceilings on time savings deposits willbe phased out over 6 years. Moreover, beginning December 31,1980, all depository institutions were allowed to issue NOW accountsto individuals and nonprofit organizations. In addition, uniformreserve requirements will apply to all depository institutionsby the end of an 8-year transition period. As a result, the burden ofreserve requirements will be spread more equitably among all institutions,and the Federal Reserve's control over the deposit base will beimproved. The law also expands the asset flexibility of savings andloan associations, which will now be allowed to place up to 20 percentof their assets in consumer loans, while mutual savings bankswill be allowed to invest up to 5 percent of their assets in businessloans. Finally, the act repealed State usury ceilings on mortgage interestrates and relaxed State usury ceilings on consumer and businessloan interest rates. These ceilings had seriously depressed suchlending in certain States at various times during the past decade.THE FINANCIAL STRUCTURE OF THE 1980s: BENEFITS, RISKS, AND PUBLICPOLICYToday's financial environment is very different from the placidconditions of two decades ago, and it is likely never to revertto that earlier state. Changes in the financial markets have had significantimpacts on the behavior of depositors, borrowers, and depositoryinstitutions who—along with the financial regulatory agencies—willface further challenges in coming years.DepositorsHigher and more volatile interest rates have increased depositorawareness of the importance of actively managing their financialassets. Moreover, the proliferation of savings alternatives has provideddepositors with access to new markets where they can receive ahigher average return on their savings than previously. Even if inter-111