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Reference Garn St. Germain Act

The Garn St. Germain Act came into force in 1982, October to deal with the high inflation. In those times the banks were restricted from increasing the interest rates on deposits and this made the people to turn to mutual funds market which promised greater returns. But in the year 1982 President Ronald Reagan in the wake of resolving the problem signed this Garn St. Germain Act.

This act was formulated in order to let down some of constrains on the banks, thrifts and their insurance fund. The act made provisions for the new Money Market Deposit Account that was aimed for the households and became really popular. For the businesses and the government agencies the act made provisions of Super Now account. The constraints that were imposed during the time of depression were now eased out enable more earnings on the thrift assets. The measure were intended to increase the thrift profits but the banks were experiencing disintermediation and the problem of decreased profits and needed help which was provided by this act. Higher rate of interest on thrift was removed; the limits on the bank’s loaning capacity were eased out; there was more restrictions on the insurance related activities of the banks; the relationship with the subsidiary banks was relaxed.

There were few problems that were posed by this act as it was good enough for the insurers to try and help the failing institutions. But the losses of these institutions increased and the insurers suffered the loss too.

Reference -- Garn St Germain Act