Savings and Loan Association (S&L)
Savings and Loan Associations (S&Ls), also known as thrifts, are financial institutions that were originally created to promote homeownership by providing affordable mortgages. They are similar to banks in many respects but are oriented more towards residential mortgage lending.
Detailed Definition
An S&L is a type of financial institution that focuses on taking deposits and originating mortgage loans. Initially, these institutions primarily served individuals looking to buy homes by offering attractive rates on savings and loans. They are regulated at both federal and state levels and often have more community-focused missions compared to larger commercial banks.
Key Functions
1. Accepting Savings Deposits
S&Ls offer competitive interest rates on savings accounts to attract deposits from consumers. These deposits provide the funding for loans.
2. Mortgage Lending
A significant portion of an S&L’s business comes from originating residential mortgage loans. They provide different kinds of mortgage products, including fixed-rate and adjustable-rate mortgages.
3. Community Focus
Many S&Ls are community-based, focusing their lending practices within the communities they serve. They often have fewer branches and more personalized services compared to larger commercial banks.
4. Financial Services
In addition to savings and mortgage loans, many S&Ls offer a variety of financial services, including consumer loans, credit cards, and sometimes commercial loans.
Examples
- Federal Savings and Loan Association: These are S&Ls regulated by the Office of the Comptroller of the Currency (OCC).
- State Savings and Loan Association: These are S&Ls regulated by state banking authorities.
Frequently Asked Questions (FAQs)
Q1: How are S&Ls different from traditional banks?
A1: S&Ls primarily focus on residential mortgage lending and savings deposits. Unlike commercial banks, they historically had restrictions on business lending and were more community-focused.
Q2: Are S&Ls safe for savings deposits?
A2: Yes, S&Ls are insured by the Federal Deposit Insurance Corporation (FDIC), just like traditional banks, making them a safe place for savings deposits.
Q3: Can I get a commercial loan from an S&L?
A3: While S&Ls originally focused on residential lending, many offer a broader range of services today, including some commercial loans. However, the extent of commercial lending can vary.
Q4: What happened to many S&Ls during the 1980s?
A4: A significant number of S&Ls were impacted by the Savings and Loan Crisis in the late 1980s and early 1990s due to mismanagement, risky investments, and regulatory changes, leading to numerous failures.
Q5: What regulations govern S&Ls?
A5: S&Ls are governed by both federal and state regulations, depending on their charter. Federally chartered S&Ls are regulated by the Office of the Comptroller of the Currency (OCC).
Related Terms
Thrift
Definition: A general term for financial institutions that specialize in taking savings deposits and making mortgage loans. This includes S&Ls, savings banks, and credit unions.
Mutual Savings Bank
Definition: A type of thrift institution that is owned by its depositors rather than stockholders and primarily focuses on residential mortgage lending.
Credit Union
Definition: A member-owned financial cooperative that provides traditional banking services to its members. Credit unions often provide more favorable rates than commercial banks.
Online Resources
Suggested Books for Further Studies
- “The Savings and Loan Crisis” by James R. Barth - An in-depth look at the historical crisis and its implications.
- “Commercial Bank Management: Financial Services” by Peter S. Rose - Although focused on banks, this book provides a broad understanding of financial services.
- “Banking and Financial Institutions” by Benton E. Gup - Covers a range of financial institutions, including S&Ls.
- “Chief Financial Officer’s Guide to Thrift Financial Reporting” by Robert N. Holt - Essential reading for financial officers dealing with thrift institutions.
Fundamentals of Savings and Loan Association: Finance Basics Quiz
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