Thrift Institutions
Savings and loan associations (SLAs) and savings banks are similar but separate financial institutions. Both were patterned after cooperative movements in
Historically, commercial banks ignored the nonbusiness sectors of the economy. This led to the evolution of a variety of thrift institutions designed specifically to serve the neglected consumer market. SLAs, which first appeared in the 1830s, were originally founded as “building societies” to provide their members with funds to buy or build a home. Today SLAs continue to concentrate on funding homes.
SLAs accept deposits from the public and use these funds to make various types of investments, mostly in residential real estate mortgages, and particularly in home mortgage loans. SLAs are the largest holders of mortgage debt in the
Savings banks were established to encourage thrift among working people and to provide a safe place for them to save. They pooled depositors' savings for investment and generally were restricted by charter to investing in government bonds. Their holdings in mortgage lending have grown from their early years, and by 1987, some 55 percent of their funds were invested in mortgage loans. A large part of their portfolios is held in stocks and bonds.
Mutual savings banks (MSBs) are found primarily on the eastern seaboard. The FDIC, including some MSBs that have converted to federal charters, insures deposits in most MSBs. The 1982 Garn-St. Germain Depository Institutions Act blurred many of the distinctions between SLAs and MSBs, permitting savings banks to convert to federal charters, and creating a new type of savings bank by allowing traditional SLAs to convert to savings banks. These new savings banks are federally chartered and are insured by the FDIC. Today SLAs, MSBs, and savings banks are all referred to generally as savings institutions.
The Garn-St. Germain Act expanded lending powers for savings institutions in the areas of consumer, commercial, and agricultural lending. These new authorities have allowed savings institutions to become full-service consumer financial centers. Savings institutions now offer a range of consumer loans, including automobile loans, home equity and home improvement loans, educational loans, trust services, and credit card purchases. Limited authority to make business loans was also part of the 1982 bill. Savings institutions also offer depositors checking accounts in the form of NOW accounts and Super NOW accounts, as well as a wide range of savings instruments, including insured money market accounts. As mandated by the Depository Institutions Deregulation and Monetary Control Act, all savings account interest rate ceilings and minimum balance requirements at savings institutions-and at commercial banks-were removed as of
On the lending side, the development of the adjustable rate mortgage (ARM) helps savings institutions match their incomes with their expenses. ARMs also function to keep housing affordable by offering borrowers lower initial interest rates on mortgage loans. An ARM loan permits adjustments in the interest rate or payment at specific intervals, based on the movement of an independent index reflecting economic conditions. Even with their expanded powers, the primary focus of savings institutions remains real estate lending, particularly home mortgages.