Savings and Loan Associations

Definition

Savings and loan associations are financial institutions that primarily accept savings deposits and make mortgage loans to their members. They are a type of thrift institution, focused on providing financial services to individuals and families, particularly in the area of home financing.

5 Must Know Facts For Your Next Test

1. Savings and loan associations are typically smaller and more community-focused than commercial banks, with a historical emphasis on home mortgage lending.
2. They are regulated by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which provides deposit insurance for their accounts.
3. Savings and loan associations experienced a significant crisis in the 1980s, leading to the failure of many institutions and the creation of the Resolution Trust Corporation to manage the crisis.
4. In recent decades, the savings and loan industry has consolidated, with many institutions being acquired by or merging with commercial banks.
5. Savings and loan associations continue to play a role in providing mortgage financing and other financial services to individuals and families, particularly in local communities.

Review Questions

• Explain the primary functions and focus of savings and loan associations within the banking system.
  • Savings and loan associations are a type of thrift institution that specialize in accepting savings deposits and providing mortgage loans, particularly to individuals and families. They have a historical focus on home financing and serving local communities, in contrast to the broader range of services and larger scale of commercial banks. Savings and loan associations play a specific role in the banking system by catering to the financial needs of households, with a emphasis on facilitating home ownership through mortgage lending.
• Describe the regulatory environment and oversight mechanisms for savings and loan associations.
  • Savings and loan associations are regulated by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which provides deposit insurance for their accounts. This regulatory framework helps to ensure the stability and soundness of these institutions, particularly in the wake of the savings and loan crisis of the 1980s, which led to the failure of many savings and loan associations. The regulatory oversight and deposit insurance help to maintain public confidence in the savings and loan industry and protect the interests of individual depositors.
• Analyze the evolution and current role of savings and loan associations within the broader banking and financial services landscape.
  • Historically, savings and loan associations played a significant role in providing mortgage financing and other financial services to individuals and families, particularly in local communities. However, the savings and loan crisis of the 1980s led to a significant consolidation in the industry, with many institutions being acquired by or merging with commercial banks. Today, while savings and loan associations continue to serve a niche market, their overall importance and market share within the broader banking system has diminished. Nevertheless, they still play a role in providing specialized financial services, such as mortgage lending, to households, often in a more community-focused manner than larger commercial banks. The evolution of the savings and loan industry reflects the changing dynamics and competitive landscape of the banking and financial services sector.

Related terms

Thrift Institutions: Financial institutions that specialize in accepting deposits and making loans, with a focus on serving individuals and families, rather than large businesses.

Mortgage Loans: Loans used to finance the purchase of real estate, with the property serving as collateral for the loan.

Deposit Insurance:

A guarantee provided by the government that protects depositors' funds in the event of a financial institution's failure.