Bank and Mortgage 2

Savings and loan associations (SLAs) are usually owned by stockholders, but they can be owned by depositors as well. (If owned by depositors, they are called “mutuals.”) If stock owned, the goal is to earn a profit that can either be paid out as a dividend or retained to increase capital. If owned by depositors, the objective is to earn a profit that can be used either to build capital or lower future loan rates or to raise future deposit rates for the depositor-owners. Until the early 1980s, regulations restricted SLAs to investing in real estate mortgage loans and accepting savings accounts and time deposits (savings accounts that exist for a specified period of time). As a result, historically SLAs have specialized in savings deposits and mortgage lending.

C.

Savings Banks

Compound Interest

Traditional savings banks, also known as mutual savings banks (MSBs), have no stockholders, and their assets are administered for the sole benefit of depositors. Earnings are paid to depositors after expenses are met and reserves are set aside to insure the deposits. During the 1980s savings banks were in a great state of flux, and many began to provide the same kinds of services as commercial banks.

Since 1982 savings banks have been permitted to convert to SLAs. SLAs also may convert to savings banks. Both SLAs and MSBs can now offer a full range of financial services, including multiple savings instruments; checking accounts; consumer, commercial, and agricultural loans; and trust and credit card services. See also Savings Institutions.

D.

Credit Unions

Credit unions are not-for-profit, cooperative organizations that are owned by their members. Their goal is to minimize the rate members pay on loans and maximize the rate paid to members on deposits. Whatever surplus is earned is retained to build the capital of the credit union. Members must share a common bond. That bond is typically employment (members all work for the same employers) or geography (members all live in the same geographic area). Historically, credit unions specialized in providing automobile and other personal loans and savings deposits for their members. However, more recently credit unions have offered mortgage loans, credit card loans, and some commercial loans in addition to checking accounts and time deposits.

Credit unions, SLAs, and savings banks help encourage thriftiness by paying interest to consumers who put their money in savings deposits. Consequently, credit unions, SLAs, and savings banks are often referred to as thrift institutions.

Of the various types of banks in the United States, commercial banks account for the greatest single source of the financial industry’s assets. In 2000 the 8,528 commercial banks in the United States controlled 24 percent of the financial industry’s total assets. Commercial banks, however, have seen their share of financial-industry assets erode over time, as more money has shifted to money market and other mutual funds. In the mid-1990s, for example, the approximately 11,000 commercial banks then in existence controlled 27 percent of assets. In 1950 they controlled nearly 50 percent of financial assets. Savings institutions’ share of financial assets has also dropped from roughly 13 percent in 1950 to 5 percent in 2000. Credit unions’ share has remained fairly constant at 2 percent