Eighteen years ago, White House aide Orin Kramer prepared a memo on banking issues for a new president. When the memo came back, President Carter had made clear his determination to deregulate the industry.

"In the margin he had written, 'Get rid of Regulation Q,'" recalled Mr. Kramer, now an investment banker in New Jersey. And in 1980, that marginal notation was incorporated in the law of the land.

The 15th anniversary of the Depository Institutions Deregulation and Monetary Control Act was just three weeks ago, March 31. Almost nobody noticed, and that's a bit of a shame, because the 1980 law set the stage for most of the triumph and trauma that have marked the banking and financial services industry since.

The Monetary Control Act took the radical step of phasing out Regulation Q limits on savings account rates - including the "differential" that permitted thrifts to pay a quarter-point more for deposits than banks.


Thrifts were also granted new powers. Loan-to-value ratios were liberalized, and savings associations were permitted to invest up to 20% of their assets in consumer loans, commercial paper, and corporate debt securities. Those powers were expanded still further two years later in the Garn-St Germain Act.

And in a step that was widely regarded as a tribute to the political muscle of the U.S. League of Savings Institutions, then the thrift industry's most powerful lobby, the law raised deposit insurance coverage to $100,000 per account, from $40,000.

The phaseout of interest rate restrictions has been widely blamed for the "first thrift crisis," a trauma born of interest rate mismatches that would later give rise to a new crisis grounded in deceptive accounting, lax regulation, and abused product powers.

As rates climbed in the late 1970s and early 1980s, thrifts found themselves paying more - much more - for deposits than they were earning on their inflexible portfolios of low-interest, fixed-rate mortgages.

Most analysts say Congress had little choice but to lift the rate restrictions. Money market mutual funds, which offered market rates of interest to small savers, were sucking in cash. Without a change in the law, thrifts would have either disintermediated out of existence or gone broke trying to compete for money in the bond markets.


Many of the same analysts agree that Congress erred mightily in raising the level of insurance coverage, a step that made it possible for the high- flying thrifts of the 1980s to raise lots of money quickly through Wall Street deposit brokers.

But the lifting of rate ceilings was also the first step in a long process of deregulation that may conclude this year as Congress considers whether to repeal the Glass-Steagall Act.

"When you think about the three types of restrictions on banks, it was rate restrictions, geographic limits, and product restrictions," said Mr. Kramer, the former White House aide. The Monetary Control Act took care of rate limits, he said, and created pressure for ending geographic and product restrictions.

"The Reg Q repeal removed a significant protection for weak institutions, by forcing them to compete in a market that was already suffering from excess capacity," he said. That hastened industry consolidation, which in turn prompted consideration of interstate branching legislation.

And the pressures of competing in a newly deregulated world have increased the industry's appetite for new powers. For much of the 1980s, banks sought expanded authority to underwrite instruments such as municipal revenue bonds and asset-backed securities. By 1988, however, the quest had focused on repealing Glass-Steagall.

Looking back, Kenneth A. Guenther said he didn't appreciate the significance of the 1980 law until well after its enactment. Mr. Guenther, now head of the Independent Bankers Association of America, was then the lobbyist for the Federal Reserve and one of those who helped shape the law.

"When it was signed, I did not see the havoc it would cause," he said.

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