Economics
Savings and Loan Association
A Savings and Loan Association is a financial institution that accepts deposits from customers and provides mortgage loans. They traditionally focused on providing home mortgage loans and were often community-based. Savings and Loan Associations play a crucial role in providing funding for home ownership and promoting savings within communities.
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eBook - PDFThe Changing Face of American Banking
Deregulation, Reregulation, and the Global Financial System
- Ranajoy Ray Chaudhuri(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
CHAPTER 8 The Housing Market and the Savings and Loan Associations Crisis: The 1980s 8.1 The European Origins of Savings and Loan Associations The terms Savings and Loan Associations (S&Ls) or thrifts—the culprits of the sav- ings and loan crisis—refer to financial institutions that specialize in accepting savings deposits and making loans, especially residential mortgages and con- sumer loans. Not more than 20 percent of their loans can be commercial, and anything over 10 percent has to be small business loans. 1 They can be under pri- vate ownership or be jointly owned by their depositors, similar to credit unions. In some cases, their shares are tradable. American Savings and Loan Associations are modeled after European savings banks. These specialize in interest-bearing savings deposits. The earliest savings banks sprang up in England, France, Germany, and Spain by the late eighteenth and early nineteenth centuries. Their goal was to encourage low- and moderate- income households to have access to banking, both for earning interest on their savings and for the purpose of safekeeping. Hence European governments, social welfare groups, and individuals with charitable intentions were some of the first to set up these institutions. German public banks (sparkassen) were the first ones to open; these were owned by the federal, state, district, or city governments. The first one was in Brunswick (Braunschweig) in Lower Saxony in 1765; Hamburg followed in 1778, and Oldenburg in 1786. 2 The first municipal savings bank opened in Göttingen in 1801. 3 Today, there are hundreds of them with thou- sands of branches and a trillion euros in assets. Germany was followed by Swit- zerland and France, which established the first one in Paris by royal ordinance in 1818. The new system was working well in France, so neighboring Spain wanted to copy them. Spanish savings banks (caja) date back to 1839 when the govern- ment changed regulations to permit them.
eBook - PDF- George B. Roberts(Author)
- 2019(Publication Date)
- Columbia University Press(Publisher)
Having provided for the incorporation of Savings and Loan Associations under Federal char-ter in such localities, the act, naturally enough, contained a further provision to the effect that existing institutions that are members of the Federal Home Loan Bank System may convert to a Federal charter, if desired. Each Federal Savings and Loan Association is required to be a member of the Federal Home Loan Bank of the district in which it is located and, when the Federal Savings and Loan Insurance Cor-poration was subsequently established, that act required each Fed-eral Savings and Loan Association to provide likewise for the in-surance of the savings of its investors. It will be noted, then, that, just as state banks and national banks have been established in the commercial banking field, so in the savings and loan field this legis-lation provided for the establishment of state-chartered Savings and Loan Associations and federally chartered Savings and Loan Associations. Up to the present time approximately 1,400 Federal Savings and Loan Associations have been chartered, about half of them being newly organized and about half constituting conver-sion of state-chartered Savings and Loan Associations. The law au-thorizing the chartering of Federal Savings and Loan Associations placed the authority to issue such charters in the Federal Home Loan Bank Board, and likewise placed the responsibility for ex-amination and supervision of such associations in the board. In 172 George L. Bliss practice, that supervision is decentralized through the designation of the officers of the Federal Home Loan Banks as regional agents of the board for the supervision of Federal savings and loan associa-tions. The Federal Savings and Loan Insurance Corporation was au-thorized by the provisions of Title IV of the National Housing Act, which became law in 1934.
- L. Thomas(Author)
- 2011(Publication Date)
- Palgrave Macmillan(Publisher)
The rate of homeownership has traditionally been significantly higher in the United States than in European and other nations, in part because the United States has extended numerous subsidies to homeowners that are not available to renters. To encourage homeownership among middle-class Americans, Congress fostered Savings and Loan Associations (S&Ls) in the 1930s. It created the Federal Home Loan Bank Board to regulate and supervise the S&Ls and the Federal Savings and Loan Association to insure their deposits. S&Ls have traditionally borrowed funds from masses of individual households by issuing savings and time deposits, using the overwhelm- ing portion of these funds to finance long-term mortgages at fixed interest rates. To retain depositors, rates paid to the households must remain roughly competitive with short-term market yields—for example those available on Treasury bills and money market mutual fund shares. To cover the salaries of employees and other operating expenses and remain profitable, an S&L must earn a rate of return on its portfolio of mortgages a percentage point or two above the average rate paid to depositors. S&Ls, like commercial banks, “borrow short and lend long.” Their cost of funds depends on short-term interest rates while the rate of return they earn on assets has traditionally depended on long-term rates. Assume the average cost of funds to an S&L is 3 percent. Assume also that the average return on the portfolio of mortgages on its books is 6 percent. As long as the cost of funds remains stable, the S&L works with a comfortable margin or “spread”—3 percentage points in this example. As long as the yield curve is upward sloping, with long-term Panic of 1907 and Savings and Loan Crisis 43 interest rates significantly higher than short-term rates, and as long as short-term rates do not rise rapidly, S&Ls are likely to exhibit healthy profits. From the 1930s to the 1970s, inflation and interest rates were relatively low and stable.
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