FINANCIAL INNOVATION AND THE MORTGAGE MARKET: THE POSSIBILITIES FOR LIABILITY MANAGEMENT BY THRIFTS.

The alternative instrument I have in mind is simply long-term deposits. Thrifts' portfolios can be stabilized just as satisfactorily by lengthening the effective term to maturity of their liabilities, with more long-term deposits for example, as by shortening the effective term to maturity of their assets. Previous discussions of VRM's and interest-rate risk protection have generally overlooked this possibility and have assumed that thrifts will continue to rely for their funds primarily on passbook deposits and other short-maturity liabilities. This paper concentrates instead on the possible implications of regulatory changes that would permit thrifts to compete effectively for long-term deposits. In the language of the commercial banking world, my analysis concerns the implications of liability management by thrift institutions. [ABSTRACT FROM AUTHOR]