Geographic Differentials In The Rate Of Return On Savings And Loan Assets

Based on a constrained S&L profit-maximization model, this empirical study estimates six reduced-form equations, using a heteroskedasticity correction, to identify the factors influencing the rate of return on S&L assets. For the years 1988 and 1989, the results consistently imply that the rate of return on S&L assets is an increasing function of the mortgage rate, the percentage of gross state product (GSP) deriving from manufacturing, and the capitaVasset ratio. In addition, it appears that the rate of return on S&L assets is a decreasing function of the volatility of gross state product, the cost of deposits, and very high mortgage delinquency rates.