June 14, 2024 

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Non-profit depository financial institutions that were originally established to provide limited banking services, often to specific groups, that were not adequately offered by traditional banks. The three primary thrift institutions are credit unions, savings and loan associations, and mutual savings banks. In recent decades these thrift institutions have broaden the range of financial services, especially offering checkable deposits, and thus operate as banks. In particular, that come under the same monetary policy regulation as traditional banks.
Thrift institutions are financial intermediaries that provide the same basic banking services as traditional banks (checking accounts, savings accounts, loans), but which were originally created to fill specific banking niches. The three most noted thrift institutions are credit unions, savings and loan associations, and mutual savings banks. Credit unions were created as mutual organizations to provide members with low cost personal loans. Savings and loan associations and mutual savings banks were set up to provide low cost mortgage loans, primarily to the working class.

A Banking Alternative

Savings and loan associations, mutual savings banks, and credit unions were all established over concerns 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.

Many savings and loan associations and mutual savings banks emerged beginning in the first half of the 1800s to provide working class and lower income folks with a means of gaining access to mortgage loans. Credit unions emerged beginning in the first decade of the 1900s to provide working class and lower income folks with a means of gaining access to personal loans.

None of these thrift institutions provided the range of banking services offered by traditional banks. Each category of thrift institution specialized in specific services. And even though mutual savings banks used the word "bank," none were really, truly, or officially considered to be banks. Most important, none of these thrift institutions offered checkable deposits.

The Turbulent Years

In the 1980s, the federal government enacted two pieces of legislation (Depository Institutions Deregulation and Monetary Control Act of 1980 and Depository Institutions Act of 1982) that effectively transformed thrift institutions into banks. They eliminated a number of regulatory obstacles that prevented thrift institutions from offering the same services as traditional banks.

These acts were largely in response to a great deal of financial turmoil during the 1970s. High inflation rates, exceeding 10 percent for several years, triggered high interest rates. To remain competitive, thrift institutions were forced to pay higher rates on deposits. They also tapped into the pool of checking account funds by offering accounts that were not "technically" or "legally" checking accounts, but worked much same. Credit unions offered share drafts while savings and loan associations and mutual savings banks offered Negotiable Order of Withdrawal (NOW) accounts.

Meanwhile, savings and loan associations and mutual savings banks had been relying on revenue from long-term mortgage loans with interest rates that were fixed at relatively low rates. To compensate, many thrifts (especially savings and loan associations) made high-risk, non-mortgage loans that regenerated more revenue... if borrowers actually made payments.

For some thrifts revenue was not sufficient to cover cost. Like other businesses with expenses exceeding revenue, a significant number went bankrupt. During the 1980s about half of the savings and loan associations had financial problems. Some simply went out of business, some merged with traditional banks or other institutions, and some reorganized assets and liabilities to become stronger institutions. The end result, assisted by changes in government regulation, was that the remaining thrift institutions became more competitive with, and functioned more like, traditional banks.

Credit Unions

Credit unions are non-profit depository financial institutions that were originally established to provide members of a specific group, such as employees of a company, with low-cost personal loans and higher interest rates on deposits than available through traditional banks.

As non-profit cooperative organizations, qualified members join credit unions by "buying" shares in the credit union, which is achieved by making a minimum deposit of $5 to $10. For this reason deposits are commonly termed "share" accounts. The share terminology is used for a range of accounts--share deposits (savings), share drafts (checking), and share certificates (certificates of deposit).

Membership in a credit union is usually confined to those in a particular group, such as employees of a particular business, members of a particular church, or workers in a particular occupation. In recent years, many credit unions have relaxed membership qualifications to broaden their potential customer bases (such as residents of a particular city).

Credit union deposits are insured by the National Credit Union Share Insurance Fund, a counterpart to the Federal Deposit Insurance Corporation, which insures deposits at traditional banks. While the amount is subject to change, deposits are currently insured up to $100,000. This insurance fund is operated through the National Credit Union Administration, which also charters and is the primary regulator credit unions.

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 using savings deposits. Many S&Ls were originally set up as "mutual" operations, which like credit unions and mutual savings banks were "owned" by their depositors. While mutually owned S&Ls continue to operate, most S&Ls are corporations owned by profit-seeking shareholders.

S&Ls can be chartered either by the federal government or by one of the fifty states. They have been around since the 1830s and have been instrumental over the decades in helping the middle class obtain home ownership. Economic and financial turmoil in the 1970s triggered a substantial number of S&Ls bankruptcies and a reorganization of the industry in the 1980s. And while the number of institutions has fallen they remain an important financial intermediary.

Mutual Savings Banks

Mutual savings banks are non-profit depository financial institutions, primarily in the eastern United States, that were originally established to provide members with low-cost home mortgage loans. Few mutual savings banks exist in the modern economy due to changes in the banking industry that have blurred the lines among depository institutions.

During the century and a half of existence, mutual savings banks were cooperatively owned (the mutual part) institutions that used savings deposits (the savings bank part) to extend mortgage loans to members. Throughout much of their history, mutual savings banks accepted only savings deposits. However, like other thrift institutions, mutual savings banks expanded their services and activities in the 1970s by offering checkable deposits and otherwise operating like traditional banks.

Mutual savings banks were something of 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 Regulators

Historically, thrift institutions have been subject to less stringent regulation that traditional banks. Unlike traditional banks that could easily induce business cycle swings, thrift institutions were usually smaller operations that played a minimal role in the economy. However, because they now function like traditional basic, especially offering checkable deposits, they are also subject to much of the same regulation.

Some of the more important thrift regulators are:

  • Federal Reserve System: The most important thrift institution regulatory, at least in terms of monetary policy, is the Federal Reserve System. Because checking accounts offered by all thrift institutions are included in the checkable deposits component of the M1 money supply, they come under the same money supply regulations that were original established to control checkable deposits held by traditional banks.

  • National Credit Union Administration: The primary credit union regulating authority is the National Credit Union Administration (NCUA). The NCUA is responsible for chartering federal credit unions (credit unions can also be chartered by each of the 50 states) and also keeps a regulatory eye on their operation.

  • Federal Home Loan Bank System: All federal-chartered and many state-chartered S&Ls are automatically of the Federal Home Loan Bank System. Credit unions and mutual savings banks (those that still exist) can also join the Federal Home Loan Bank System. This system includes the Federal Housing Finance Board (FHFB) and twelve Federal Home Loan Banks (FHLB). In addition to providing access to low-cost funds, the FHFB and FHLBs have regulatory oversight of member institutions.

  • Federal Deposit Insurance Corporation: S&L deposits are insured by the Savings Association Insurance Fund (SAIF), which is administered by the Federal Deposit Insurance Corporation (FDIC). The FDIC and the SAIF took over S&L deposit insurance after the Federal Savings and Loan Insurance Corporation (FSLIC) went bankrupt in the 1980s.


Recommended Citation:

THRIFT INSTITUTIONS, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: June 14, 2024].

Check Out These Related Terms...

     | banking | banks | savings and loan associations | credit unions | mutual savings banks | traditional banks | fractional-reserve banking |

Or For A Little Background...

     | money | M1 | profit | industry | monetary economics | government functions | financial markets | liquidity |

And For Further Study...

     | money creation | Federal Reserve System | Federal Deposit Insurance Corporation | Comptroller of the Currency | central bank | monetary policy | bank panic | monetary aggregates | negotiable order of withdrawal accounts |

Related Websites (Will Open in New Window)...

     | Federal Housing Finance Board | Federal Home Loan Banks | Federal Reserve System | Federal Deposit Insurance Corporation | National Credit Union Administration |

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