Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980
(P.L. 96-221, 94 STAT. 132)
This was an attempt to alleviate problems in the thrift industry by lifting interest rate ceilings, authorizing thrifts to offer checking and NOW accounts, and granting powers to thrifts formerly reserved to commercial banks, including allowing savings and loans to enter into consumer loans and credit card businesses and mutual savings banks to make business loans and accept demand deposits. The Act also preempted state usury laws concerning several kinds of loans, including through the addition of 12 USC §1821d, the "most favored lender" doctrine for state banks, and increased deposit insurance from $40,000 to $100,000.
- After heavy regulation of banks in the 1960s and 1970s, this act was the beginning of a pullback of federal regulation of banking restrictions.
- The act equalized treatment among all financial institutions, allowing all the same discount and borrowing privileges from the Federal reserve.
- In response to an ongoing decline in bank capital ratios, capital was defined by establishing 2 classes of capital. This system was later replaced by the 1988 Basel Accord, which established tier 1 and tier 2 capital.
- Phased out interest rate ceilings on deposit accounts.
- Allowed the "NOW" accounts, basically checking accounts, to be offered by all types of financial institutions, including credit unions.
- Eliminated state mortgage usury ceilings unless a state took overt action to "opt out."
Why is it still relevant?
- Impact of no interest rate ceilings on deposits made banks more competitive with other financial providers (investment firms) but also made banking more difficult, because the spread between the cost of money and what they have to offer as interest rates on deposits has decreased. Banking in the 60s and 70s was considered to be easy street, but today it is much more difficult to make a profit, and on top of that they are still highly regulated.
- This was the beginning of deregulation and although some thought this would move quickly, the pace was very slow. Consider that only recently did the barriers of Glass Steagall come down.