After studying chapter 15, you should be able to: Explain how a firm creates value, and identify the key sources of value creation; define the overall “cost of capital” of the firm, calculate the costs of the individual components of a firm’s overall cost of capital: cost of debt, cost of preferred stock, and cost of equity;. | 8- McGraw-Hill/Irwin Chapter Fourteen Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies 14- McGraw-Hill/Irwin Savings Institutions (SIs) Historically referred to as Savings and Loans (S&Ls) Savings banks (SBs) appeared in the 1980s Specialize in long-term residential mortgages, which are usually financed with short-term deposits of small savers Faced a huge crisis during the 1982-1992 period that saw over half of all SIs fail 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 Some 4,000 SIs existed at the end of the 1970s By 2007, only 1,257 SIs exist The Federal Reserve radically changed its monetary policy during October 1979 to October 1982 targeted reserves rather than interest rates led to sudden surge in interest rates many SIs faced negative spreads SIs lost depositors because of Regulation Q 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 Depository Institutions Deregulations and Monetary Control Act (DIDMCA) of 1980 and Garn-St. Germain Depository Institutions Act (GSGDIA) of 1982 addressed the crisis allowed interest-bearing transaction accounts allowed SIs to offer floating- or adjustable-rate mortgages allowed expansion into real estate development and commercial lending some SIs chose to invest in the junk bond market and suffered large losses when the junk bond market collapsed in the mid-1980s 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 Real estate and land prices collapsed in many areas of the . in the mid-1980s many mortgages defaulted as a result The Federal Savings and Loan Insurance Corporation (FSLIC) had a policy of regulatory forbearance ., its policy was to not close economically insolvent FIs, allowing them to continue to operate 1,248 SIs failed in the 1982 to 1992 period the FSLIC became massively insolvent as a result 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of . | 8- McGraw-Hill/Irwin Chapter Fourteen Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies 14- McGraw-Hill/Irwin Savings Institutions (SIs) Historically referred to as Savings and Loans (S&Ls) Savings banks (SBs) appeared in the 1980s Specialize in long-term residential mortgages, which are usually financed with short-term deposits of small savers Faced a huge crisis during the 1982-1992 period that saw over half of all SIs fail 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 Some 4,000 SIs existed at the end of the 1970s By 2007, only 1,257 SIs exist The Federal Reserve radically changed its monetary policy during October 1979 to October 1982 targeted reserves rather than interest rates led to sudden surge in interest rates many SIs faced negative spreads SIs lost depositors because of Regulation Q 14- McGraw-Hill/Irwin The S&L Crisis of 1982-1992 Depository Institutions Deregulations and Monetary Control Act (DIDMCA) of
