Savings Institutions

I

Introduction

Savings Institutions, banks or associations originally established to encourage personal thrift through the deposit of individual or family savings that accrued earnings in the form of interest. In the United States, the major savings institutions are savings and loan associations (SLAs) and savings banks.

II

Savings and Loan Associations

Financial institutions devoted to the thrift and homeownership needs of the American public are known primarily as savings and loan associations. They represent the second largest group of financial institutions in the United States; only commercial banks account for more savings deposits and assets. SLAs are also known as cooperative banks (in New England) or homestead associations (in the state of Louisiana).

The American savings and loan business began in Frankfort, Pennsylvania, in 1831, with the creation of the Oxford Provident Building Association, patterned after British building societies of the time. This U.S. business was founded because commercial banks dealt primarily with the nation's commercial and industrial needs. The Oxford Provident was created so that ordinary individuals would have a place to invest their money and borrow funds to buy a home.

In the early days, most savings associations were terminating institutions—that is, their sole purpose was to enable members to purchase a home. Each member would deposit a monthly payment. The institutions were set up so that the monthly payments of each depositor would allow one member per month to buy a home. The member who was granted a mortgage then paid monthly installments until the debt was satisfied. The terminating associations remained in business until all members had received funds to purchase homes, and then they were usually dissolved.

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The success of Oxford Provident and other similar institutions led to the development of the serial association. Members were admitted on a quarterly, semiannual, or annual basis to these institutions, which had a continuing life. Many of these newer savings associations accepted members who wanted to save, but not necessarily to buy a home. Borrowers were charged interest on their loans; savers were repaid their contributions plus earnings at the completion of their contracts. This important development encouraged the accumulation of capital for reasons other than, or in addition to, the purchase of homes.

The third step in the evolution of the savings and loan business was the organization of permanent associations that accepted members on a daily basis and paid out earnings in regular installments. These institutions financed homes and charged interest much as they do today.

In 1933 the U.S. Congress created the Federal Home Loan Bank Board (now the Office of Thrift Supervision) to oversee federally chartered SLAs. The Savings Association Insurance Fund (SAIF) insures savers’ deposits, a responsibility formerly exercised by the Federal Savings and Loan Insurance Corporation (FSLIC).

The real growth of savings institutions came after World War II (1939-1945) as home ownership grew. By 2004 there were about 13,600 savings institutions, including SLAs, in the United States. Total assets of these savings institutions in 2004 were $10.1 trillion.

III

Traditional Savings Banks

Savings banks are services to the public. The first savings bank was established in Ruthwell Village, Scotland, in 1810. It was the conception of the Reverend Henry Duncan, who attempted to relieve the poverty of his congregation by providing a means for ready saving of small sums. The idea was adopted in 1816 in the United States with the formation of two savings banks, one in Boston and the other in Philadelphia.

Traditional savings banks have no stockholders, and their assets are administered for the sole benefit of present and future depositors, with earnings paid to such depositors after expenses are met and reserves are set aside for depositors’ protection (Federal Deposit Insurance Corporation). During the 1980s savings banks were in a great state of flux; many began to provide the same kinds of services as commercial banks.

Since 1982 savings banks have been permitted to convert to federal charters, a move that has blurred many of the distinctions between SLAs and savings banks. SLAs also may convert to savings banks and are federally chartered and insured by SAIF. Savings institutions now offer a full range of financial services, including multiple savings instruments; checking accounts in the form of Super NOW and NOW accounts; consumer, commercial, and agricultural loans; and trust and credit card services.

See also Banking.

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