Depository Institutions Deregulation and Monetary Control Act

The Depository Institutions Deregulation and Monetary Control Act of 1980 (, ) (often abbreviated DIDMCA or MCA) is a United States federal financial statute passed in 1980 and signed by President Jimmy Carter on March 31.

Purposes

DIDMCA gave the Federal Reserve greater control over non-member banks.

* It forced all banks to abide by the Fed's rules.
* It relaxed the rules under which national banks could merge.
* It removed the power of the Federal Reserve Board of Governors under the Glass–Steagall Act to use Regulation Q to set maximum interest rates for any deposit accounts other than demand deposit accounts (with a six-year phase-out).
* It allowed Negotiable Order of Withdrawal accounts to be offered nationwide.Gilbert, Alton. "Requiem for Regulation Q: What It Did and Why It Passed Away", Federal Reserve Bank of St. Louis: pp. 31-33

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* It raised the deposit insurance of US banks and credit unions from $40,000 to $100,000.
* It allowed credit unions and savings and loans to offer checkable deposits.
* It allowed institutions to charge any loan interest rates they chose.Michelle Minton
The Community Reinvestment Act's Harmful Legacy, How It Hampers Access to Credit
Competitive Enterprise Institute, No. 132, March 20, 2008.John Atlas and Peter Dreier
The Conservative Origins of the Sub-Prime Mortgage Crisis
, The American Prospect, December 18, 2007.

Reasons and background

The act was in part a response to economic volatility and financial innovations of the 1970s that increasingly pressed the highly regulated savings and loan industry and arguably had unintended consequences that helped lead to the collapse and subsequent bailout of that financial sector. While S&Ls were freed to pay depositors higher interest rates, the institutions continued to carry large portfolios of loans paying them much lower rates of return; by 1981, 85 percent of the thrifts were losing money and the congressional response was the Garn–St Germain Depository Institutions Act of 1982.

The bill's passage is considered an important shift in the Democratic Party's positioning on economic regulation, as the party had historically defended New Deal era financial regulations, but had now come to favor financial deregulation. According to a 2022 study, this shift happened as a consequence of the congressional reforms of the 1970s, which undermined parochial and Southern populist interests within the Democratic Party. These parochial and populist interests favored a decentralized banking system. The party subsequently pursued deregulatory reforms that it perceived as beneficial to savers and consumers.

Effects and Criticism

Despite the initial popularity of the DIDMCA, legislative actions in states like Rhode Island and Minnesota have challenged its provisions, particularly those allowing national banks to export interest rates. These states are considering bills to opt out of this federal provision, aiming to exert more local control over interest rate regulations.

The legislative actions seeking to repeal DIDMCA-like policies have been criticized by examining Colorado's experience, as detailed in a study by J Howard Beales III and Andrew Stivers. They argue that Colorado's decision to opt out of federal banking law equality has led to reduced credit access, especially for consumers with lower credit scores or insufficient credit history. Their analysis suggests that such legislative limits on competition can exacerbate negative effects on citizens most in need of access to credit, highlighting the broader implications of undermining the DIDMCA's objectives.

References

Further reading

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External links

FDIC page on actPublic Law 96-221, 96th Congress, H.R. 4986: Depository Institutions Deregulation and Monetary Control Act of 1980

{{Bank regulation in the United States

1980 in American law
Federal Reserve System
United States federal banking legislation
Federal Deposit Insurance Corporation
Savings and loan crisis