Reagan Signs Garn-St Germain Act: Massive Thrift Deregulation

President Reagan signs the Garn-St Germain Depository Institutions Act in the Rose Garden, calling it “the most important legislation for financial institutions in the last 50 years.” The Act removes Depression-era constraints on thrift asset holdings, allows S&Ls to make high-risk commercial real estate loans and variable-rate mortgages, and creates new money market deposit accounts. Industry lobbying achieves regulatory capture as the Act passes Congress 272-91 despite concerns about risk. The deregulation enables thrifts to “grow out of” insolvency problems by taking greater risks with federally-insured deposits, setting up the conditions for the S&L crisis.