Savings and loan associations (S&Ls), also known as thrifts, are financial institutions that specialize in accepting savings deposits and making mortgage loans. They have played a pivotal role in the development of the housing market in the United States by providing a means for the average person to save and borrow. While the term "S&L" is predominantly used in the U.S., similar institutions exist globally, such as building societies in the UK and trustee savings banks in some Commonwealth nations.
Savings and loan associations are unique in that they are often mutually held, meaning that depositors and borrowers are members with voting rights, influencing the institution's financial and managerial decisions. This structure is akin to policyholders' role in a mutual insurance company. However, some S&Ls have evolved into joint-stock companies or even publicly traded entities, which shifts control away from depositors and borrowers.
The concept of savings and loan associations emerged in the early 19th century, a time when banking services were primarily accessible to those with substantial wealth. The Philadelphia Savings Fund Society, founded on December 20, 1816, was the first savings bank in the U.S., and by the 1830s, such institutions had become commonplace.
In the UK, the savings bank movement began with the Reverend Henry Duncan, who established the first savings bank in 1810. The Savings Bank Museum in Ruthwell, Scotland, preserves the legacy of this movement, including Duncan's contributions and the broader history of UK savings banks. However, the UK's counterpart to the U.S. S&Ls is the building society, with origins dating back to the 1770s.
During the early 20th century, S&Ls became instrumental in promoting homeownership by offering mortgage lending services. They also provided members with savings and investment options, such as passbook savings accounts and term certificates of deposit.
Initially, insurance companies, not banks, issued mortgages. These early mortgages often had short terms with balloon payments at the end or were interest-only loans that did not reduce the loan's principal. Consequently, many borrowers found themselves in perpetual debt or faced foreclosure when unable to meet the balloon payment.
Today, S&Ls continue to serve as a vital part of the financial sector, although their presence has diminished following the savings and loan crisis of the 1980s. According to the Federal Deposit Insurance Corporation (FDIC), as of 2021, there were 659 savings institutions insured by the FDIC in the United States FDIC.
Despite their reduced numbers, S&Ls remain committed to their original mission of supporting homeownership and savings. They have adapted to the modern financial landscape by offering a range of services, including online banking and competitive mortgage rates.
In conclusion, savings and loan associations have a rich history and continue to play a significant role in the financial well-being of individuals. Their evolution from mutual organizations to modern financial entities reflects the changing dynamics of the banking industry and the ongoing need for accessible savings and lending services.
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