Savings association

Savings Association

A savings association, also known as a thrift or a savings and loan association (S&L), is a financial institution that specializes in accepting savings deposits and making mortgages and other loans. The primary purpose of savings associations is to promote personal savings and home ownership. They play a crucial role in the financial services industry, particularly in providing access to credit for home buyers.

History

The concept of the savings association originated in the 19th century in the United Kingdom as a means to enable working-class individuals to save money and purchase homes. The idea quickly spread to the United States, where the first savings and loan association was established in the 1830s. For much of the 20th century, savings associations were an essential source of home financing in the U.S., contributing significantly to the post-World War II housing boom.

Regulation

Savings associations in the United States are regulated by the Office of the Comptroller of the Currency (OCC) or by state banking authorities. They are also subject to regulations under the Federal Home Loan Bank Act and the Savings and Loan Holding Company Act. The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance to depositors in savings associations, up to the legal limit.

Operations

Savings associations accept deposits from the public and use these funds to make loans, primarily for residential mortgages. They may also offer other banking services such as checking accounts, personal loans, and commercial loans. The interest rate spread between deposit liabilities and loan assets is a primary source of income for savings associations.

Challenges and the Savings and Loan Crisis

The 1980s saw a significant crisis in the savings and loan industry in the United States, known as the Savings and Loan Crisis. Deregulation, poor management, and speculative investments led to the insolvency of many institutions, resulting in a costly bailout by the federal government. The crisis led to significant regulatory changes and the consolidation of the industry.

Modern Developments

In recent years, the distinction between savings associations and other types of banks has blurred, with many savings associations converting into savings banks or commercial banks. Technological advancements and changes in consumer behavior have also influenced the operations and services offered by savings associations.

See Also

• Bank
• Credit union
• Mortgage loan
• Financial crisis of 2007–2008