savings and loan association

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Related to Savings associations: Savings Association Insurance Fund, Savings Banks

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.

Bibliography

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 ?
National banks and federal savings associations should not rely solely on this document to determine the activities permissible for their institutions.
Workshops are taught by experienced OCC staff and are two of the 35 offered nationwide to enhance and expand the skills of national community bank and federal savings association directors.
These are companies, including large insurance companies, which own a federal or state chartered savings association.
Lawyers from the Justice Department have maintained in the lawsuits that have begun to be tried that the savings associations are entitled to little or nothing because the government's action was not the major cause of any injury and, in fact, the regulators had actually helped the industry by changing the rules.
Order Approving Notice to Acquire a Savings Association and to Engage in Nonbanking Activities
The bulletin establishes investment guidelines for savings associations buying structured notes.
The Office of the Comptroller of the Currency (OCC) today announced it will host a public meeting of the Mutual Savings Association Advisory Committee (MSAAC) on Tuesday, October 17, 2017, beginning at 3:00 p.
The effects of the banking industry's interstate consolidation are evident: All but six states now report that more than 15% of depository institutions' branches are part of an out-of-state bank or savings association.
3) The Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act.
The Office of the Comptroller of the Currency encourages national banks and federal savings associations to work with customers affected by Hurricane Harvey.
Over the same period, the number of FDIC-insured savings associations fell by more than 35%, from 2,030 in 1995 to 1,314 at the end of 2005:IIIQ.
The Board previously has indicated that, when analyzing the competitive effects of a proposal, it may consider the competition of savings associations at a level greater than 50 percent of the savings association's deposits if appropriate.
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