savings and loan association

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savings and loan association

(S&L), type of financial institution that was originally created to accept savings from private investors and to provide home mortgage services for the public.

The first U.S. S&L was founded in 1831. In 1932, the Federal Home Loan Bank System was created to oversee the S&Ls, with deposits to be insured by the Federal Savings and Loan Insurance Corporation (FSLIC). In 1933 the federal government began chartering S&Ls, although they generally were not required to be federally chartered. After World War II, the associations began a period of rapid expansion. Historically, S&Ls could be organized in two ways: either as a mutual or a capital stock institution. A mutual organization would be similar in operation to a mutual savings banksavings bank,
financial institution that, until recently, performed only the following functions: receiving savings deposits of individuals, investing them, and providing a modest return to its depositors in the form of interest.
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S&Ls went through many changes in the late 20th cent., primarily due to deregulatory measures instituted in the 1980s by the U.S. federal government, allowing them to offer a much wider range of services than ever before. The deregulatory measures allowed S&Ls to enter the business of commercial lending, trust services, and nonmortgage consumer lending. The Depository Institutions Deregulation and Monetary Control Act of 1980 began these sweeping changes, one of which was to raise deposit insurance from $40,000 to $100,000. Many contend that this extension of insurance coverage encouraged S&Ls to engage in riskier loans than they might otherwise have sought.

Two years later, the Depository Institutions Act gave S&Ls the right to make secured and unsecured loans to a wide range of markets, permitted developers to own S&Ls, and allowed owners of these institutions to lend to themselves. Under the new laws, the Federal Home Loan Bank Board (FHLBB) was given a number of new powers to secure the capital positions of S&Ls. The FHLBB allowed S&Ls to print their own capital, and escape charges of insolvency through such measures as "goodwill," in which customer loyalty and market share were counted as part of a capital base. As a result, an S&L that was technically insolvent could resist government seizure.

S&Ls began to engage in large-scale speculation, particularly in real estate. Financial failure of the institutions became rampant, with well over 500 forced to close during the 1980s. In 1989, after the FSLIC itself became insolvent, the Federal Deposit Insurance CorporationFederal Deposit Insurance Corporation
(FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $250,000.
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 took over the FSLIC's insurance obligations, and the Resolution Trust CorporationResolution Trust Corporation
(RTC), in U.S. history, government-owned company formed in 1989 to liquidate the assets of insolvent savings and loan associations (S&Ls).
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 was created to buy and sell defaulted S&Ls. The S&L crisis ultimately cost the government some $124 billion. The Office of Thrift Supervision (1989; functions transferred to the Office of the Comptroller of the Currency, 2011) also was created, in an attempt to identify struggling S&Ls before it was too late, but the largest S&Ls were among the institutions at the core of the financial crisis of 2008.


See A. Teck, Mutual Savings Banks and Savings and Loan Associations (1968); F. E. Balderston, Thrifts in Crisis: Structural Transformation of the Savings and Loan Industry (1985).

References in periodicals archive ?
The winners who stand to profit the most from the precedent set by Friday's decision are other prominent businessmen who hold big stakes in savings associations that have filed similar claims.
In acting on notices to acquire a savings association, the Board reviews the records of performance of the relevant depository institutions under the Community Reinvestment Act (12 U.
The conversion of Emerald from a bank to a savings association would occur before the merger.
Portfolio lenders are privately sponsored institutions that are capable of holding mortgages in their own portfolios; among these institutions are commercial banks, savings associations, and some mortgage banks.
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After the acquisition, Seven Hills Savings Association will continue to operate as a savings association chartered by the State of Ohio, with offices in Cincinnati, and will be a separate subsidiary of Western Ohio.
Atlantic Liberty Financial Corporation is a $177 million holding company that operates its main business activities through its subsidiary savings association in Brooklyn, New York.
Sterling Savings Association is a Washington state-chartered, federally- insured stock savings association which opened in April 1983.
Nasdaq: LARL) announced today that on January 3, 1995 its wholly owned subsidiary, Laurel Savings Association, completed its conversion from a Pennsylvania-chartered savings association to a Pennsylvania-chartered savings bank known as "Laurel Savings Bank.
The federal banking agencies issued on April 9, 2002, a final rule amending their risk-based capital standards for banks, bank holding companies, and savings associations (institutions) to reduce the risk weight applied to claims on, or guaranteed by, qualifying securities firms.
The OTS issued a bulletin in August urging savings associations to use caution when investing in structured notes.
Asset-quality indicators for savings associations show some weakening.
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