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| Savings and loan associations | |
|---|---|
| Name | Savings and loan associations |
| Type | Financial institution |
| Industry | Banking |
| Founded | 19th century (United States) |
| Fate | Many converted, merged, or failed during late 20th century |
| Headquarters | Various |
| Products | Mortgages, deposit accounts, consumer loans |
Savings and loan associations
Savings and loan associations were financial institutions originating in the 19th century that specialized in accepting deposits and making mortgage loans. They played prominent roles in urban and suburban United States housing markets and interacted with institutions such as the Federal Home Loan Bank System, Federal Savings and Loan Insurance Corporation, and the Federal Deposit Insurance Corporation. Their operations have been influenced by legislative acts like the Depository Institutions Deregulation and Monetary Control Act of 1980 and crises tied to events such as the Savings and loan crisis.
The origins trace to early mutual building societies in United Kingdom, Irish Society of Friends-linked cooperatives, and antebellum credit unions in New England, while in United States the model grew through the 19th century alongside institutions like the Knights of Labor and organizations such as the Federal Home Loan Bank Act of 1932-era system. Mid-20th century prominence saw ties to postwar programs from the New Deal and interactions with agencies like the Home Owners' Loan Corporation and the Federal Housing Administration. Deregulation in the 1970s and 1980s followed pressures similar to those confronting Continental Illinois National Bank and Trust Company and led to the high-profile Savings and loan crisis that involved regulators including the Resolution Trust Corporation and prompted reforms like the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Associations historically organized as mutuals or stock companies, echoing models used by building societies and continental mutual banks such as Crédit Agricole and Sparkasse. Their balance sheets emphasized long-term fixed-rate mortgages and short-term deposits, creating interest-rate mismatch risks similar to those of Long-Term Credit Bank of Japan and Northern Rock. Management structures incorporated boards akin to those of Wachovia and Bank of America subsidiaries, while corporate conversions paralleled moves by institutions like Nationwide Building Society and Lloyds Banking Group.
Supervision involved agencies like the Office of Thrift Supervision (historically), Office of the Comptroller of the Currency, and state regulators such as the California Department of Financial Protection and Innovation. Federal insurance frameworks included the Federal Savings and Loan Insurance Corporation and later the Federal Deposit Insurance Corporation. Legal frameworks that shaped oversight included the National Housing Act, the Depository Institutions Deregulation and Monetary Control Act of 1980, and the Gramm–Leach–Bliley Act. Crisis-era enforcement actions echoed cases involving institutions like Lehman Brothers and regulatory responses reminiscent of Troubled Asset Relief Program discussions.
Core products encompassed fixed-rate and adjustable-rate mortgages, home equity loans, and deposit accounts similar to offerings from Wells Fargo and JPMorgan Chase. Ancillary services included escrow management, mortgage-backed securities dealings akin to those of Fannie Mae and Freddie Mac, and consumer lending comparable to products from Citigroup and HSBC Holdings plc. Securitization practices linked associations to markets influenced by Securities and Exchange Commission rules and participants such as Goldman Sachs and Morgan Stanley.
Associations were major originators of residential mortgages and active participants in secondary markets dominated by Fannie Mae and Freddie Mac, supporting homeownership patterns like those promoted by the GI Bill and urban redevelopment projects such as Levittown, New York. Their lending behavior affected housing booms and busts observed alongside phenomena in California and Florida, and they interacted with mortgage servicers and credit rating agencies like Moody's Investors Service and Standard & Poor's.
Failures peaked during the late-1980s Savings and loan crisis, involving prominent failed thrift institutions and rescue efforts by the Resolution Trust Corporation. Causes mirrored problems seen in international banking failures such as the Icelandic financial crisis and the 2008 financial crisis: interest-rate risk, asset-liability mismatch, fraud cases akin to those prosecuted against executives in scandals like Enron, and inadequate capital akin to situations at Barings Bank. High-profile collapses prompted legal proceedings in courts such as the United States District Court for the Southern District of New York and congressional inquiries by the United States House Committee on Financial Services.
Comparable institutions exist worldwide under names such as building societies (United Kingdom), caisses populaires (Canada), cajas (Spain), Landesbanken (Germany), and cooperative banks like Rabobank and Banca Popolare di Milano. Regulatory regimes varied: European frameworks involved the European Central Bank and national supervisors like the Bank of England and Bundesanstalt für Finanzdienstleistungsaufsicht, while Canadian counterparts worked with the Office of the Superintendent of Financial Institutions (Canada). Crisis experiences paralleled regional episodes including the Nordic banking crisis and the Japanese asset price bubble.