What Is the Depository Institutions Deregulation Committee—DIDC?

The Depository Institutions Deregulation Committee (DIDC) was a six-member committee established by the Depository Institutions Deregulation and Monetary Control Act of 1980. The DIDC had the primary purpose of phasing out interest rate ceilings on deposit accounts by 1986.

Key Takeaways:

  • The Depository Institutions Deregulation Committee (DIDC) was a six-member committee established in 1980.
  • Under the Depository Institutions Deregulation and Monetary Control Act of 1980. The DIDC had the primary purpose of phasing out interest rate ceilings on deposit accounts by 1986.
  • The DIDC's overall purpose was to deregulate bank interest rates.
  • The Monetary Control Act of 1980 and the DIDC failed as S&L managements were ill-equipped to operate in a deregulated environment.

Understanding the Depository Institutions Deregulation Committee (DIDC)

The six members of the DIDC were the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Federal Deposit Insurance Corporation (FDIC), the Chairman of the Federal Home Loan Bank Board (FHLBB) and the Chairman of the National Credit Union Administration Board (NCUAB) as voting members, and the Comptroller of the Currency as a non-voting member.

In addition to the phase out of interest rate ceilings, the Depository Institutions Deregulation Committee's (DIDC's) other tasks included devising new financial products that would allow thrift banks, or Savings and Loan Associations (S&Ls), to compete with money funds and to eliminate ceilings on time deposits. However, its overall purpose was to deregulate bank interest rates.

Since 1933, Regulation Q, which set minimum capital requirements and capital adequacy standards for board-regulated institutions in the United States, had limited the interest rates banks could pay on their deposits.These restrictions were extended to S&Ls in 1966. As inflation rose sharply in the late 1970s, however, more money was being withdrawn from regulated passbook savings accounts than was deposited, and S&Ls found it increasingly difficult to obtain and secure funds. At the same time, they carried a huge number of long-term loans at low interest rates.

Depository Institutions Deregulation and Monetary Control Act of 1980

President Carter signed the Depository Institutions Deregulation and Monetary Control Act of 1980. It gave the Federal Reserve greater control over non-member banks. The act allowed banks to merge, removed the power of the Federal Reserve Board of Governors to set maximum interest rates for deposit accounts, allowed Negotiable Order of Withdrawal accounts to be offered nationwide, raised the deposit insurance of US banks and credit unions from $40,000 to $100,000, allowed credit unions and S&Ls to offer checkable deposits, and allowed institutions to charge any loan interest rates they chose.

The act was a response to the economic volatility and financial innovations of the 1970s that increasingly pressed the highly regulated savings and loan industry. Some consider that the act unintentionally caused the collapse and subsequent bailout of the S&L financial sector. While S&Ls could pay depositors higher interest rates, the institutions carried large loan portfolios with low rates of return.

Why the Monetary Control Act of 1980 Failed

As interest rates kept rising, the thrifts found themselves increasingly unprofitable and becoming insolvent. The Monetary Control Act of 1980 and the DIDC were all part of an effort to restore solvency to the thrift industry—an effort that ultimately failed as S&L managements were ill-equipped to operate in the deregulated environment that was created.