Mortgage loans constitute the major asset of mutual savings banks and deposits their major liability. Lending long term and borrowing short is inherently risky, and the savings banks’ situation has been aggravated in recent years by the volatility of interest rates, commercial bank competition, newly competing money market funds and the shortening maturity of public and private debt. In 1966, 1969, 1973 and again recently, disintermediation—a net decline in deposits at savings banks—disrupted both the mortgage market and the home building industry.

The author’s tests reveal that the major factor contributing to disintermediation is the interest rate differential between savings deposits and Treasury bills. Consumer sentiment and the proportion of time deposits in the thrifts’ liability mix also play a role.

Although savings banks were given the authority, in June of 1978, to issue $10,000 and $1,000 minimum certificates at competitive interest rates, the rapid rise in short-term interest rates over the past few months has affected their deposits. The Hunt Commission’s recommendations to eliminate rate ceilings on savings bank deposits seem to be well founded.