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Show THE THUNDERBIRD S&L collapse to be detailed by pair of SU professors SUSC TUESDAY, SEPTEMBER 25, 1990 PAGE Jest for Fti Cedar's most unique store The chain of events which led to banking deregulation in 1981 ultimately resulted in a collapse of fiduciary responsibility and conservatism, say two Southern Utah associate professors of finance. Roger Hillyard and Alan Hamlin will present a paper titled The Collapse of Fiduciary Responsibility: How the Public Has Been Deceived at the Mountain Plains Management Conference af Weber State College Oct. 12, which details the events that will result in taxpayers footing the bill for the $300 billion thrift bailout. Fiduciary responsibility is the underlying philosophy on which modern banking practices have been built. It is defined as the holding of something in trust, and applies to financial institutions in that the money which they invest and lend is not their own, but rather their depositors. According to Hillyard and Hamlin, this concept so permeated banks and savings and loans that conservatism the emphasis on safety and security of principal rather than risk and income was the hallmark of the industry until things began to go awry in the 490 So. Main 586-711- 3 Unique gifts Casual atmosphere Something for t A- -' v . everyone Classic fashions Ask for Sally for special prices A- -'"' ff 1970s. As the Vietnam war began to wind down, the American economy suffered stagflation. Another economic shock occurred when the 1974 Arab oil embargo led to a dramatic increase in domestic prices. Over the next six years, inflation soared at an unprecedented rate, reaching 16 percent in 1980. The rampant inflation encouraged a flight of funds from noninterest bearing checking accounts and low interest paying savings accounts as depositors sought alternatives, such as money market and other mutual funds, that paid interest rates that would better offset the effects of inflation. The Bankruptcy Reform Act of 1978 didnt help matters either, the professors said. Within the first 12 months after it was passed, Chapter 7 bankruptcies rose by a whopping 75 percent, discharging over $6 billion that, at least in theory, should have been returned with interest. IRAs and other tax deferred accounts which gave small investors an alternative to keeping their funds in bearing demand deposits also contributed to the plight of the financial institutions. Ultimately, these conditions resulted in the Deregulation Act of 1980 and the Garn-St- . Germain Act of 1982. The Deregulation Act allowed financial institutions to pay interest on checking accounts and loosened the reins on how much interest financial institutions could offer in order to attract funds. According to Hillyard and Hamlin, this resulted in manv financial institutions compromising their fiduciary responsibility av they pursued avenues that would enable them to make more monev to cover the increased interest they were paying to depositors. This accelerated the tendency to stress loans over more secure but less profitable investments. Manv of these loans were of a riskier nature m order to earn higher interest. Savings and loans, and other thrift institutions, already shackled with long term, low interest real estate loans, were now allowed to have interest bearing checking accounts and to make consumer and commercial loans. Howeter, it created a more volatile deposit non-intere- st (CONTINUED ON PAGE O) V i i Best y y Wishes K A Class of K N 1991 A From everyone Kj 3 at Bcbs CEDAR CITY IH6-2S- 2 L 491 S. 17i AIM FAMOUS BRANDS ;r FJW?I s I V 'v Q & C f I k I W .r; t- - r fcv! F TfW M Iff MANICUhcJ HAIKCUYC PERMS COLORS WE CARRY PAUL MITCHELL & AREDA PRODUCTS ASK ABOUT OUR OTHER PRODUCTS WE WELCOME WALK-I- NS epcatu'Ua&: 'PaeUcwiei' WELCOME BACK SUSC STUDENTS AND FACULTY 15 |