A Building and Loan Association refers to a financial institution that originated in the 19th century to help middle-class families finance the purchase of homes. They are similar to Savings and Loan Associations, another type of mutual institution.
Historical Context
Building and Loan Associations first emerged in the mid-19th century in the United States and the United Kingdom. They were established to address the need for accessible home financing:
- U.S. Context: Enabled members to pool savings to provide funds for home construction.
- UK Context: Originally called Building Societies, focused on cooperative saving for home buying.
Functions of Building and Loan Associations
These associations served multiple crucial roles:
- Pooling Savings: Members collectively saved money in the association.
- Home Loans: Providing mortgage loans to members for home purchases.
- Dividends: Distributing profits back to members as dividends, creating a community ownership model.
Relation to Savings and Loan Associations
In many cases, Building and Loan Associations are considered a subset or former designation of Savings and Loan Associations (S&Ls). These institutions underwent significant regulatory and functional changes over time but retained their core purpose of facilitating home ownership through pooled savings and loans.
Key Differences
- Terminology: “Building and Loan Association” is an older term, more commonly used in historical contexts.
- Modern Terminology: “Savings and Loan Association” is the contemporary term, reflecting evolved regulatory frameworks and financial products.
Special Considerations
Regulatory Environment
These associations are subject to strict regulations to maintain financial stability and protect members’ assets. Notable in the U.S. is the federal regulation by agencies like the Office of the Comptroller of the Currency (OCC).
Community Impact
Building and Loan Associations were instrumental in boosting home ownership and fostering savings habits among middle-class citizens, significantly contributing to community development.
Examples
- United States: The First Federal Savings and Loan Association established, providing affordable loans and promoting home ownership.
- United Kingdom: The Halifax Building Society, one of the largest Building Societies, provided competitive mortgage products.
Comparisons
Building and Loan Association vs. Credit Unions
- Purpose: Both aim to serve specific communities, but Credit Unions typically offer a broader range of financial services.
- Membership: Building and Loan Associations were traditionally focused narrowly on home financing, whereas Credit Unions offer diverse banking services.
Related Terms
- Mutual Savings Bank: A similar institution focusing on saving and loan services for a community.
- Mortgage: A loan specifically for purchasing property, commonly provided by such associations.
FAQs
What happened to Building and Loan Associations?
Are there still Building and Loan Associations today?
References
- U.S. Financial Institutions Examination Council. “History of Savings and Loan Associations.”
- Smith, M. (1966). The History of Building Societies. University Press.
Summary
Building and Loan Associations played a pivotal role in the democratization of home ownership by enabling collective savings and providing mortgage loans. While often synonymous with Savings and Loan Associations today, they remain historically significant in understanding the evolution of cooperative financial institutions aimed at supporting the housing market.
The historical accomplishments and structural functions of Building and Loan Associations enhance our comprehension of community-based finance and highlight their persistent influence on modern housing finance mechanisms.
