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💸principles of economics review

Savings and Loans

Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025

Definition

Savings and loans refer to financial institutions that primarily accept deposits from individuals and provide loans, often for the purpose of purchasing homes or other real estate. These institutions play a crucial role in the banking and financial system, facilitating the flow of capital and enabling individuals to save and borrow funds.

5 Must Know Facts For Your Next Test

  1. Savings and loan associations were established in the United States in the 19th century to promote home ownership and provide a safe place for individuals to save their money.
  2. Savings and loan institutions are typically regulated by the federal government and are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
  3. Historically, savings and loan associations were required to invest a certain percentage of their assets in residential mortgages, which helped to promote home ownership.
  4. The savings and loan crisis of the 1980s and early 1990s was a major financial crisis in the United States that led to the failure of many savings and loan institutions.
  5. Today, savings and loan associations continue to play an important role in the banking and financial system, providing personal banking services and mortgage lending to local communities.

Review Questions

  • Describe the primary functions of savings and loan institutions within the banking and financial system.
    • Savings and loan institutions serve two primary functions within the banking and financial system. First, they accept deposits from individuals, providing them with a safe place to save their money and earn interest. Second, they use these deposits to provide loans, particularly mortgage loans, to individuals and businesses, enabling them to finance the purchase of homes and other real estate. In this way, savings and loan institutions facilitate the flow of capital and promote home ownership within local communities.
  • Explain the historical significance of the savings and loan industry in the United States and how it has evolved over time.
    • Savings and loan institutions were established in the United States in the 19th century with the goal of promoting home ownership and providing a safe place for individuals to save their money. Historically, these institutions were required to invest a certain percentage of their assets in residential mortgages, which helped to increase access to home loans and drive the growth of home ownership. However, the savings and loan crisis of the 1980s and early 1990s led to the failure of many of these institutions, prompting changes in regulation and oversight. Today, savings and loan associations continue to play an important role in the banking and financial system, but their focus and operations have evolved to adapt to changing economic and regulatory conditions.
  • Analyze the role of government regulation and oversight in the savings and loan industry, and how this has impacted the industry's development and stability over time.
    • Savings and loan institutions have long been subject to government regulation and oversight, which has had a significant impact on the industry's development and stability over time. The federal government has historically played a key role in regulating these institutions, including setting requirements for the types of assets they can hold and the amount of capital they must maintain. The establishment of the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) has also provided a safety net for depositors, helping to maintain public confidence in the savings and loan industry. However, the savings and loan crisis of the 1980s and early 1990s demonstrated the risks associated with lax regulation and oversight, leading to changes in the regulatory framework and increased scrutiny of these institutions. Today, the ongoing regulation and oversight of the savings and loan industry continues to play a critical role in ensuring its stability and protecting the interests of consumers and the broader financial system.