Determinants of the rate of return on S&;L assets: 1970–97

This study identifies determinants of the rate of return on U.S. Saving and Loan (S&L) assets during the 1970–97 period. The Instrumental Variables (IV) estimation reveals that this rate of return is an increasing function of the spread between the S&L mortgage interest rate and the S&L cost of funds, the regulatory S&L capital-asset ratio, and the percentage growth rate of real GDP. It is negatively affected by the Tax Reform Act of 1986 and positively affected by the Federal Deposit Insurance Corporation Improvement Act of 1991. Based on these findings, certain policy implications and general conclusions are suggested.