mutual savings bank
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A mutual savings bank is a
financial institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...
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 are shared among the members. The institution is intended to provide a safe place for individual members to save and to
invest Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...
those savings in
mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions 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 t ...
s,
loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...
s,
stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...
s, bonds and other
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
and to share in any profits or losses that result.


History

The institution most frequently identified as the first modern savings bank was the " Savings and Friendly Society" organized in 1810 by Rev. Henry Duncan of the Ruthwell Presbyterian Church in
Dumfriesshire Dumfriesshire or the County of Dumfries or Shire of Dumfries () is a Counties of Scotland, historic county and registration county in southern Scotland. The Dumfries lieutenancy areas of Scotland, lieutenancy area covers a similar area to the hi ...
,
Scotland Scotland is a Countries of the United Kingdom, country that is part of the United Kingdom. It contains nearly one-third of the United Kingdom's land area, consisting of the northern part of the island of Great Britain and more than 790 adjac ...
. Duncan established a friendly society to create a
cooperative A cooperative (also known as co-operative, coöperative, co-op, or coop) is "an autonomy, autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned a ...
depository institution Colloquially, a depository institution is a financial institution in the United States (such as a savings bank, commercial bank, savings and loan associations, or credit unions) that is legally allowed to accept monetary deposits from consumer ...
in order to enable his poorest parishioners to hold
savings account A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditi ...
s accruing
interest In finance and economics, interest is payment from a debtor 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 f ...
for sickness and old-age. Another precursor of modern savings banks were the ideas of Friedrich Wilhelm Raiffeisen that led to rural
credit unions A credit union is a member-owned nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts ( cheque accounts), credit ...
and
cooperative bank 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 ...
s. European voluntary organizations and " friendly societies" provided the inspiration for their state-incorporated American counterparts. These first savings banks were envisioned as philanthropic endeavors, designed to uplift the poor and working classes. The banks were started by philanthropists who took on the positions of savings bank trustees, managers, and directors as opportunities to teach the working class the virtues of thrift and self-reliance by allowing them the security to save their money. The first incorporated US mutual savings bank was the Provident Institution for Savings in Boston. Its 1816 charter was the first government legislation in the world to safeguard savings banks. In 2015, the oldest (and largest) mutual bank in the U.S. was Eastern Bank of Boston, with approximately $10 billion in assets. It was chartered in 1818 in Salem, Massachusetts, as the Salem Savings Bank. In 2020, Eastern Bank demutualized and listed its stock on the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...
. Since the 1970s, when the industry was deregulated, thousands of mutual savings banks have been converted into stock ownership companies, raising more than $40 billion. In 2010, only about 600 remained. These conversions have often resulted in large financial rewards for top bank executives. Current mutual saving banks include Dollar Bank, Ridgewood Savings Bank, Middlesex Savings Bank, Liberty Bank, and Marquette Savings Bank.


Mutual banking in Australia

Beginning in the 1980s, several building societies in Australia converted to banks, but were required to demutualize when doing so. These included Advance Bank (formerly NSW Building Society), St. George, Suncorp, Metway Bank, Challenge Bank, Bank of Melbourne and Bendigo Bank. A change in regulation meant that building societies and credit unions were no longer required to demutualize upon converting to banks, and several, including Heritage Bank, have converted since 2011 while retaining their status and structure as mutual organizations.


Use and design

Mutual savings banks were designed to stimulate savings by individuals; the exclusive function of these banks is to protect deposits, make limited, secure investments, and to provide depositors with interest. Unlike
commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...
s, savings banks have no stockholders; the entirety of profits beyond the upkeep of the bank belongs to the depositors of the mutual savings bank. Mutual savings banks prioritize security, and as a result, have historically been characteristically conservative in their investments. This conservatism is what allowed mutual savings banks to remain stable throughout the turbulent period of the
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
, despite the failing of commercial banks and savings and loan associations. Marquette Savings Bank is a great example of this, having been praised by ''
The Economist ''The Economist'' is a British newspaper published weekly in printed magazine format and daily on Electronic publishing, digital platforms. It publishes stories on topics that include economics, business, geopolitics, technology and culture. M ...
'' for its performance during the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
.


See also

*
Bank A bank is a financial institution that accepts Deposit account, 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 m ...
*
Building society A building society is a financial institution owned by its members as a mutual organization, which offers banking institution, banking and related financial services, especially savings and mortgage loan, mortgage lending. They exist in the Unit ...
*
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 is a member-owned nonprofit organization, nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts (che ...
*
Capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...
*
Demutualization Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, member ...
*
Mutual organization A mutual organization, also mutual society or simply mutual, is an organization (which is often, but not always, a company or business) based on the principle of mutuality and governed by private law. Unlike a cooperative, members usually do not ...


References

{{Money and central banking within the contemporary United States (pre–1913) * Cooperative banking