A savings and loan association (S&L), or thrift institution, is a
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
that specializes in accepting
savings
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
deposits and making
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
and other loans. The terms "S&L" or "thrift" are mainly used in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
; similar institutions in the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
,
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
and some
Commonwealth
A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
countries include
building societies
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Kingdo ...
and
trustee savings bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s. They are often
mutually held (often called
mutual savings bank
A mutual savings bank is a financial institution chartered by a central or regional government, without capital stock, owned by its members who subscribe to a common fund. From this fund, claims, loans, etc., are paid. Profits after deductions a ...
s), meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a
credit union
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
or the policyholders of a
mutual insurance
A mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividend distributions or re ...
company. While it is possible for an S&L to be a
joint-stock company
A joint-stock company is a business entity in which shares of the company's capital stock, stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their share (finance), shares (certificates ...
, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to
housing downturns such as
the deep one the U.S. experienced in 2007.
Early history
At the beginning of the 19th century,
banking
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
was still something only done by those who had
asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
s or
wealth
Wealth is the abundance of Value (economics), valuable financial assets or property, physical possessions which can be converted into a form that can be used for financial transaction, transactions. This includes the core meaning as held in the ...
that needed safekeeping. The first savings bank in the United States, the
Philadelphia Saving Fund Society
The Philadelphia Savings Fund Society (PSFS), originally called the Philadelphia Saving Fund Society, was a savings bank headquartered in Philadelphia, Pennsylvania, United States. PSFS was founded in December 1816, the first savings bank to organ ...
, was established on December 20, 1816, and by the 1830s, such institutions had become widespread.
In the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
, the first savings bank was founded in 1810 by the
Henry Duncan Henry Duncan may refer to:
* Henry Duncan (minister) (1774–1846), Scottish minister, geologist and social reformer; founder of the savings bank movement
* Henry Duncan (naval officer, born 1735) (1735–1814), Naval captain and Deputy Comptroller ...
, the minister of
Ruthwell
Ruthwell is a village and parish on the Solway Firth between Dumfries and Annan in Dumfries and Galloway, Scotland.
Thomas Randolph, Earl of Moray, gave Ruthwell to his nephew, Sir William Murray, confirmed to Sir John Murray, of Cockpool, in ...
Church in
Dumfriesshire
Dumfriesshire or the County of Dumfries or Shire of Dumfries (''Siorrachd Dhùn Phris'' in Gaelic) is a historic county and registration county in southern Scotland. The Dumfries lieutenancy area covers a similar area to the historic county.
I ...
,
Scotland
Scotland (, ) is a country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a border with England to the southeast and is otherwise surrounded by the Atlantic Ocean to the ...
. It is home to the Savings Bank Museum, in which there are records relating to the history of the
savings bank
A savings bank is a financial institution whose primary purpose is accepting savings account, savings deposits and paying interest on those deposits.
History of banking, They originated in Europe during the 18th century with the aim of providi ...
movement in the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
, as well as family memorabilia relating to Henry Duncan and other prominent people of the surrounding area. However, the main type of institution similar to U.S. savings and loan associations in the United Kingdom is not the savings bank, but the
building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Kingdo ...
and had existed since the 1770s.
U.S. savings and loan in the 20th century
The savings and loan association became a strong force in the early 20th century through assisting people with home ownership, through
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
lending, and further assisting their members with basic
saving
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recur ...
and
investing
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
outlets, typically through
passbook
A passbook or bankbook is a paper book used to record bank or building society transactions on a deposit account.
Traditionally, a passbook was used for accounts with a low transaction volume, such as savings accounts. A bank teller or postma ...
savings accounts and term certificates of deposit.
The savings and loan associations of this era were famously portrayed in the 1946 film ''
It's a Wonderful Life
''It's a Wonderful Life'' is a 1946 American Christmas by medium#Films, Christmas Fantasy film, fantasy drama film produced and directed by Frank Capra, based on the short story and booklet ''The Greatest Gift'', which Philip Van Doren Stern se ...
''.
Mortgage lending
The earliest mortgages were not offered by banks, but by
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
companies, and they differed greatly from the mortgage or home loan that is familiar today. Most early mortgages were short with some kind of
balloon payment
A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity.Wiedemer, John P, ''Real Estate Finance, 8th Edition'', p 109-110 The final payment is called a ''balloon ...
at the end of the term, or they were
interest-only loan An interest-only loan is a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period. At the end of the interest-only term the borrower must renegotiate anothe ...
s which did not pay anything toward the principal of the loan with each payment. As such, many people were either perpetually in debt in a continuous cycle of refinancing their home purchase, or they lost their home through
foreclosure
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Formally, a mortg ...
when they were unable to make the balloon payment at the end of the term of that loan.
The US Congress passed the
Federal Home Loan Bank Act
The Federal Home Loan Bank Act, , is a United States federal law passed under President Herbert Hoover in order to lower the cost of home ownership. It established the Federal Home Loan Bank Board to charter and supervise federal savings and loan i ...
in 1932, during the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. It established the
Federal Home Loan Bank
The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to the members of financial institutions to support housing finance and community investment.
Overview
The FHLBank System was ...
and associated
Federal Home Loan Bank Board
The Federal Home Loan Bank Board (FHLBB) was a board created in 1932 that governed the Federal Home Loan Banks (FHLB or FHLBanks) also created by the act, the Federal Savings and Loan Insurance Corporation (FSLIC) and nationally-chartered savings ...
to assist other banks in providing funding to offer long term,
amortized
In computer science, amortized analysis is a method for analyzing a given algorithm's complexity, or how much of a resource, especially time or memory, it takes to execute. The motivation for amortized analysis is that looking at the worst-case ...
loans for home purchases. The idea was to get banks involved in lending, not insurance companies, and to provide realistic loans which people could repay and gain full ownership of their homes.
Savings and loan associations sprang up all across the United States because there was low-cost funding available through the Federal Home Loan Bank Act.
Further advantages
Savings and loans were given a certain amount of preferential treatment by the
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
inasmuch as they were given the ability to pay higher
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
rates on savings deposits compared to a regular
commercial bank
A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.
It can also refer to a bank, or a division of a large bank, which deals with cor ...
. This was known as Regulation Q (''The Interest Rate Adjustment Act of 1966'') and gave the S&Ls 50 basis points above what banks could offer. The idea was that with marginally higher savings rates, savings and loans would attract more deposits that would allow them to continue to write more
mortgage loan
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
s, which would keep the mortgage market liquid, and funds would always be available to potential borrowers.
However, savings and loans were not allowed to offer
check
Check or cheque, may refer to:
Places
* Check, Virginia
Arts, entertainment, and media
* ''Check'' (film), a 2021 Indian Telugu-language film
* ''The Checks'' (episode), a 1996 TV episode of ''Seinfeld''
Games and sports
* Check (chess), a thr ...
ing accounts until the late 1970s. This reduced the attractiveness of savings and loans to consumers, since it required consumers to hold accounts across multiple institutions in order to have access to both checking privileges and competitive savings rates.
In the 1980s the situation changed. The
United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
granted all thrifts in 1980, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. The
Depository Institutions Deregulation and Monetary Control Act
The Depository Institutions Deregulation and Monetary Control Act of 1980 (, ) (often abbreviated DIDMCA or MCA) is a United States federal financial statute passed in 1980 and signed by President Jimmy Carter on March 31. It gave the Federal Res ...
(DIDMCA) of 1980 was designed to help the banking industry to combat disintermediation of funds to higher-yielding non-deposit products such as money market mutual funds. It also allowed thrifts to make consumer loans up to 20 percent of their assets, issue credit cards, and provide
negotiable order of withdrawal In the United States, a negotiable order of withdrawal account (NOW account) is a deposit account that pays interest on which an unlimited number of checks may be written.
A negotiable order of withdrawal is essentially identical to a check drawn ...
(NOW) accounts to consumers and nonprofit organizations. Over the next several years, this was followed by provisions that allowed banks and thrifts to offer a wide variety of new market-rate deposit products. For S&Ls, this deregulation of one side of the balance sheet essentially led to more inherent interest rate risk inasmuch as they were funding long-term, fixed-rate mortgage loans with volatile shorter-term deposits.
In 1982, the
Garn-St. Germain Depository Institutions Act was passed and increased the proportion of assets that thrifts could hold in consumer and commercial real estate loans and allowed thrifts to invest 5 percent of their assets in commercial, corporate, business, or agricultural loans until January 1, 1984, when this percentage increased to 10 percent.
Decline
During the
savings and loan crisis, from 1986 to 1995, the number of federally insured savings and loans in the United States declined from 3,234 to 1,645. Analysts mostly attribute this to unsound real estate lending. The market share of S&Ls for single family mortgage loans went from 53% in 1975 to 30% in 1990.
The following is a detailed summary of the major causes for losses that hurt the S&L business in the 1980s according to the United States League of Savings Associations:
# Lack of net worth for many institutions as they entered the 1980s, and a wholly inadequate net worth regulation.
# Decline in the effectiveness of
Regulation Q Regulation Q ( 12 CFRbr>217 is a Federal Reserve regulation which sets out capital requirements for banks in the United States. Updated as required. The version of Regulation Q current was enacted in 2013.
From 1933 until 2011, an earlier version ...
in preserving the spread between the cost of money and the rate of return on assets, basically stemming from inflation and the accompanying increase in market interest rates.
# Inability to vary the return on assets with increases in the rate of interest required to be paid for deposits.
# Increased competition on the deposit gathering and mortgage origination sides of the business, with a sudden burst of new technology making possible a whole new way of conducting financial institutions generally and the mortgage business specifically.
# A rapid increase in investment powers of associations with passage of the
Depository Institutions Deregulation and Monetary Control Act
The Depository Institutions Deregulation and Monetary Control Act of 1980 (, ) (often abbreviated DIDMCA or MCA) is a United States federal financial statute passed in 1980 and signed by President Jimmy Carter on March 31. It gave the Federal Res ...
(the Garn-St Germain Act), and, more important, through state legislative enactments in a number of important and rapidly growing states. These introduced new risks and speculative opportunities which were difficult to administer. In many instances management lacked the ability or experience to evaluate them, or to administer large volumes of nonresidential construction loans.
# Elimination of regulations initially designed to prevent lending excesses and minimize failures. Regulatory relaxation permitted lending, directly and through participations, in distant loan markets on the promise of high returns. Lenders, however, were not familiar with these distant markets. It also permitted associations to participate extensively in speculative construction activities with builders and developers who had little or no financial stake in the projects.
# Fraud and insider transaction abuses, especially in the case of state-chartered and regulated thrifts, where regulatory supervision at the state level was lax, thinly-spread, and/or insufficient (e.g.: Texas, Arizona).
# A new type and generation of opportunistic savings and loan executives and owners — some of whom operated in a fraudulent manner — whose takeover of many institutions was facilitated by a change in FSLIC rules reducing the minimum number of stockholders of an insured association from 400 to one.
# Dereliction of duty on the part of the board of directors of some savings associations. This permitted management to make uncontrolled use of some new operating authority, while directors failed to control expenses and prohibit obvious conflict of interest situations.
# A virtual end of inflation in the American economy, together with overbuilding in multifamily, condominium-type residences and in commercial real estate in many cities. In addition, real estate values collapsed in the energy states —
Texas
Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
,
Louisiana
Louisiana , group=pronunciation (French: ''La Louisiane'') is a state in the Deep South and South Central regions of the United States. It is the 20th-smallest by area and the 25th most populous of the 50 U.S. states. Louisiana is borde ...
,
Oklahoma
Oklahoma (; Choctaw language, Choctaw: ; chr, ᎣᎧᎳᎰᎹ, ''Okalahoma'' ) is a U.S. state, state in the South Central United States, South Central region of the United States, bordered by Texas on the south and west, Kansas on the nor ...
particularly due to
falling oil prices — and weakness occurred in the mining and agricultural sectors of the economy.
# Pressures felt by the management of many associations to restore net worth ratios. Anxious to improve earnings, they departed from their traditional lending practices into credits and markets involving higher risks, but with which they had little experience.
# The lack of appropriate, accurate, and effective evaluations of the savings and loan business by public accounting firms, security analysts, and the financial community.
# Organizational structure and supervisory laws, adequate for policing and controlling the business in the protected environment of the 1960s and 1970s, resulted in fatal delays and indecision in the examination/supervision process in the 1980s.
# Federal and state examination and supervisory staffs insufficient in number, experience, or ability to deal with the new world of savings and loan operations.
# The inability or unwillingness of the
Federal Home Loan Bank Board
The Federal Home Loan Bank Board (FHLBB) was a board created in 1932 that governed the Federal Home Loan Banks (FHLB or FHLBanks) also created by the act, the Federal Savings and Loan Insurance Corporation (FSLIC) and nationally-chartered savings ...
and its legal and supervisory staff to deal with problem institutions in a timely manner. Many institutions, which ultimately closed with big losses, were known problem cases for a year or more. Often, it appeared, political considerations delayed necessary supervisory action.
While not specifically identified above, a related specific factor was that S&Ls and their lending management were often inexperienced with the complexities and risks associated with commercial and more complex loans as distinguished from their roots with "simple" home mortgage loans.
Consequences of U.S. government acts and reforms
As a result, the
(FIRREA) dramatically changed the savings and loan industry and its federal regulation. Here are the highlights of this legislation, signed into law on August 9, 1989:
# The
Federal Home Loan Bank Board
The Federal Home Loan Bank Board (FHLBB) was a board created in 1932 that governed the Federal Home Loan Banks (FHLB or FHLBanks) also created by the act, the Federal Savings and Loan Insurance Corporation (FSLIC) and nationally-chartered savings ...
(FHLBB) and the
Federal Savings and Loan Insurance Corporation
The Federal Savings and Loan Insurance Corporation (FSLIC) was an institution that administered deposit insurance for savings and loan institutions in the United States.
History Establishment
The FSLIC was established by the National Housing Act ...
(FSLIC) were abolished.
# The
Office of Thrift Supervision
The Office of Thrift Supervision (OTS) was a List of federal agencies in the United States, United States federal agency under the United States Department of the Treasury, Department of the Treasury that chartered, supervised, and regulated all ...
(OTS), a bureau of the
United States Treasury Department
The Department of the Treasury (USDT) is the Treasury, national treasury and finance department of the federal government of the United States, where it serves as an United States federal executive departments, executive department. The departme ...
, was created to charter, regulate, examine, and supervise savings institutions.
# The
Federal Housing Finance Board
The Federal Housing Finance Board (FHFB) was an Independent agencies of the United States government, independent agency of the United States government established in 1989 in the aftermath of the savings and loan crisis to take over management of ...
(FHFB) was created as an independent agency to oversee the 12
Federal Home Loan Banks
The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide liquidity to the members of financial institutions to support housing finance and community investment.
Overview
The FHLBank System was ...
(also called district banks), formerly overseen by the FHLBB.
# The Savings Association Insurance Fund (SAIF) replaced the FSLIC as an ongoing insurance fund for thrift institutions. (Like the
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...
(FDIC), FSLIC was a permanent corporation that insured savings and loan accounts up to $100,000.) SAIF was administered by the FDIC alongside its sister fund for banks, Bank Insurance Fund (BIF) until 2006 when the
Federal Deposit Insurance Reform Act of 2005 The Federal Deposit Insurance Reform Act of 2005 (Title II, subtitle B of , with a companion statute, Federal Deposit Insurance Reform Conforming Amendments Act of 2005, ), was an act of the United States Congress on banking regulation. It contained ...
(effective February 2006) provided, among other provisions, that the two funds merge to constitute the Depositor Insurance Fund (DIF), which would continue to be administered by the FDIC.
# The
Resolution Trust Corporation
The Resolution Trust Corporation (RTC) was a U.S. government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets ...
(RTC) was established to dispose of failed thrift institutions taken over by regulators after January 1, 1989.
# FIRREA gave both
Freddie Mac
The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.[Fannie Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...]
additional responsibility to support mortgages for low- and moderate-income families.
The
Tax Reform Act of 1986
The Tax Reform Act of 1986 (TRA) was passed by the 99th United States Congress and signed into law by President Ronald Reagan on October 22, 1986.
The Tax Reform Act of 1986 was the top domestic priority of President Reagan's second term. The a ...
had also eliminated the ability for investors to reduce regular wage income by so-called "passive" losses incurred from real estate investments, e.g., depreciation and interest deductions. This caused real estate value to decline as investors pulled out of this sector.
Characteristics
The most important purpose of savings and loan associations is to make
mortgage loans
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
on residential property. These organizations, which also are known as savings associations, building and loan associations, cooperative banks (in
New England
New England is a region comprising six states in the Northeastern United States: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. It is bordered by the state of New York to the west and by the Canadian provinces ...
), and homestead associations (in
Louisiana
Louisiana , group=pronunciation (French: ''La Louisiane'') is a state in the Deep South and South Central regions of the United States. It is the 20th-smallest by area and the 25th most populous of the 50 U.S. states. Louisiana is borde ...
), are the primary source of financial assistance to a large segment of American homeowners. As home-financing institutions, they give primary attention to single-family residences and are equipped to make loans in this area.
Some of the most important characteristics of a savings and loan association are that:
# It is generally a locally owned and privately managed home financing institution.
# It receives individuals' savings and uses these funds to make long-term amortized loans to home purchasers.
# It makes loans for the construction, purchase, repair, or refinancing of houses.
# It is state or federally chartered.
Differences from savings banks
Accounts at savings banks were insured by the FDIC. When the Western Savings Bank of Philadelphia failed in 1982, it was the FDIC that arranged its absorption into the
Philadelphia Savings Fund Society
The Philadelphia Savings Fund Society (PSFS), originally called the Philadelphia Saving Fund Society, was a savings bank headquartered in Philadelphia, Pennsylvania, United States. PSFS was founded in December 1816, the first savings bank to organ ...
(PSFS). Savings banks were limited by law to only offer savings accounts and to make their income from mortgages and student loans. Savings banks could pay one-third of 1% higher interest on savings than could a commercial bank. PSFS circumvented this by offering "payment order" accounts which functioned as checking accounts and were processed through the Fidelity Bank of Pennsylvania. The rules were loosened so that savings banks could offer automobile loans, credit cards, and actual checking accounts. In time PSFS became a full commercial bank.
Accounts at savings and loans were insured by the FSLIC. Some savings and loans did become savings banks, such as First Federal Savings Bank of Pontiac in Michigan. What gave away their heritage was that their accounts continued to be insured by the FSLIC.
Savings and loans accepted deposits and used those deposits, along with other capital that was in their possession, to make loans. What was revolutionary was that the management of the savings and loan was determined by those that held deposits and in some instances had loans. The amount of influence in the management of the organization was determined based on the amount on deposit with the institution.
The overriding goal of the savings and loan association was to encourage savings and investment by common people and to give them access to a financial intermediary that otherwise had not been open to them in the past. The savings and loan was also there to provide loans for the purchase of large ticket items, usually homes, for worthy and responsible borrowers. The early savings and loans were in the business of "neighbors helping neighbors".
See also
*
Cooperative banking
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carr ...
*
Credit union
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
References
External links
Office of Thrift Supervision
{{DEFAULTSORT:Savings And Loan Association
Cooperative banking
*