Later on, Congress demanded that thrifts obtain a bank charter by
1998. This was not too onerous for most of them. At the height of
the crisis the ratio of their combined equity to their combined
assets was less than 1%. But in 1994 it reached almost 10% and
remained there ever since.
This remarkable turnaround was the result of serendipity as much as
careful planning. Interest rate spreads became highly positive. In a
classic arbitrage, savings and loans paid low interest on deposits
and invested the money in high yielding government and corporate
bonds. The prolonged equity bull market allowed thrifts to float new
stock at exorbitant prices.
As the juridical relics of the Great Depression - chiefly amongst
them, the Glass-Steagall Act - were repealed, banks were liberated
to enter new markets, offer new financial instruments, and spread
throughout the USA. Product and geographical diversification led to
enhanced financial health.
But the very fact that S&L's were poised to exploit these
opportunities is a tribute to politicians and regulators alike -
though except for setting the general tone of urgency and
resolution, the relative absence of political intervention in the
handling of the crisis is notable. It was managed by the autonomous,
able, utterly professional, largely a-political Federal Reserve.
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