Savings and loan associations, which are very sensitive to interest-rate movements, have seen their net worth seriously eroded by the high interest rates prevailing in recent years. Over the 1980-1984 period, the number of institutions shrank by almost 25 percent, with 510 failures and another 325 mergers.

At the end of 1984, another 877 institutions, holding about 31 percent of the assets of all FSLIC-insured institutions, had net worth, as defined by the Federal Home Loan Bank Board) of less than 3 percent of their liabilities -- and 71 institutions had zero or negative net worth. . . .

If rates remain in their current range for some time, many institutions could recoup some of their losses incurred since 1980. On the other hand, if interest rates rise, the losses will recur because many S&Ls have done little to address their interest-rate sensitivity, turning instead to higher- yielding but more risky assets to increase their earnings. Thus, S&Ls not only remain highly sensitive to interest-rate movements, but are now besieged by the increasingly poor credit quality of many of their assets.

Agricultural, or farm, banks are another sector of the financial services industry that has recently been beset by problems. High interest rates and falling prices of farm land and farm products . . . have led to loan defaults and some bank failures. Although the problems associated with these banks are not as readily traceable to high interest rates as those of S&Ls, a marked increase in interest rates would make it harder for farmers to meet their financial obligations, and would be likely to result in increased loan defaults and subsequent bank failures.