A Bit of Background

• Big Bad Banks: Mutual savings banks were originally created for reasons similar to that of credit unions--concern that traditional banks were not providing adequate services at reasonable prices. Few traditional banks in the mid-1800s dealt in small savings deposits, such as those that might be desired by working class folks. Moreover, traditional banks were more likely to make loans to large businesses to invest in capital than to working class people to purchase homes. The working class was largely excluded of the banking arena.


• Mutual Finance: For these reasons, small groups of people in a community, usually less than a hundred, began setting up mutual savings banks. They pooled their minimal savings to help each other purchase housing. Members purchased shares in a mutual savings bank, usually done over time by depositing small amounts in a savings account, which then gave them the right to obtain a home mortgage loan.


• Something of a Mix: Mutual savings banks were one of three thrift institutions that emerged in the 1800s to fill the financial gaps left by traditional banks. Credit unions specialized in short-term personal loans, often used by labor union members during periods of unemployment. Savings and loan associations also provided long-term mortgage loans, but usually offered more services and may or may not be mutually owned. The niche filled by mutual savings banks was a mix between credit unions and savings and loan associations. They were set up as non-profit cooperatives that pooled members' savings like credit unions, but their primary lending activity was mortgage loans, like savings and loan associations.


• The 70s and 80s: The 1970s marked the beginning of changes for mutual savings banks as well as other financial institutions. High inflation rates triggered high interest rates. Competition among all depository institutions intensified. All financial intermediaries began introducing new types of accounts and making different types of loans. Mutual savings banks, like savings and loan associations, began offering Negotiable Order of Withdrawal (checking) accounts. Such changes blurred the lines between traditional banks and assorted thrift institutions. In other words, mutual savings banks began unofficially operating like traditional banks.

  In response, the federal government enacted regulatory changes that legally allowed mutual savings banks to officially operate like traditional banks. While mutual savings banks had been small, state-chartered, community operations, this largely changed. Many merged with other mutual banks or traditional banks. Others converted from mutual organizations to incorporated businesses. Some became federally chartered banks. While the individual institutions continue to exist, most can no longer be considered mutual savings banks.

  Most important, mutual savings banks or the institutions that they became, now come under many of the same money supply regulations as credit unions, savings and loan associations, and traditional banks.

Two Other Thrift Institutions

• Savings and Loan Associations: Savings and loan associations (S&Ls) are depository financial institutions that were originally established to assist home owners with low-cost mortgage loans. The funds for these loans were obtained by offering simple savings deposits. S&Ls were an outgrowth of the exploding housing needs of the middle class in the mid-1900s.


• Credit Unions: Credit unions are non-profit depository financial institutions that were established to provide members of a specific group, such as employees of a company, with low-cost personal loans. Credit unions were founded, often by labor unions, over concerns that traditional banks were not providing adequate services to working class consumer, especially personal loans.