Federal Savings and Loan Associations (FS&Ls), also known as thrifts or S&Ls, are federally chartered financial institutions primarily responsible for accepting savings deposits from the public and providing mortgage loans for residential housing. They play a critical role in home financing, helping individuals and families attain homeownership.
Historical Context and Evolution
Establishment
The origins of FS&Ls date back to the 19th century, emerging to serve middle-class Americans who were mainly underserved by commercial banks. They were formally established by the government to promote greater homeownership by offering mortgage financing at lower interest rates.
The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980
The scope and operations of FS&Ls were significantly broadened by the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) enacted in 1980. DIDMCA aimed to deregulate and improve the competitiveness of depository institutions by phasing out interest rate ceilings on deposit accounts and granting broader lending and investment powers.
Key Features and Operations
Accepting Savings Deposits
FS&Ls accept savings deposits from customers, which may include regular savings accounts, money market accounts, and certificates of deposit (CDs). These deposits constitute the primary source of capital that FS&Ls utilize to provide mortgage loans.
Mortgage Lending
FS&Ls specialize in mortgage lending, particularly for residential properties. They offer various mortgage products such as fixed-rate mortgages, adjustable-rate mortgages (ARMs), and affordable home loans to facilitate homeownership for a broad spectrum of borrowers.
FDIC Insurance
Accounts held with FS&Ls are insured by the Federal Deposit Insurance Corporation (FDIC) up to a limit of $250,000 per depositor, per insured bank, for each account ownership category. This insurance provides depositor security and promotes trust in the financial system.
Significance and Applicability
Promoting Homeownership
By providing accessible and affordable mortgage financing, FS&Ls have been instrumental in promoting homeownership, contributing to the stability of communities and the economy.
Economic Impact
The activity of FS&Ls in the housing market supports construction and related industries, driving economic growth and employment.
Comparisons and Related Terms
Commercial Banks vs. FS&Ls
While commercial banks offer a wide range of financial products and services to individuals and businesses, FS&Ls focus more specifically on savings and residential mortgages. However, since the 1980s deregulation, the lines between these two types of institutions have blurred somewhat.
Credit Unions
Credit unions, like FS&Ls, are member-owned financial cooperatives that primarily lend for residential housing, but they differ in being not-for-profit entities focused on serving their members.
FAQs
How are FS&Ls regulated?
What is the current status of FS&Ls?
Summary
Federal Savings and Loan Associations remain a cornerstone in the financial landscape, especially regarding residential mortgage financing. With a history rooted in promoting homeownership, their continued role is supported by federal regulation and FDIC insurance, offering a dependable foundation for secure savings and borrowing for homes.
References:
- Federal Deposit Insurance Corporation (FDIC) - https://www.fdic.gov/
- Office of the Comptroller of the Currency (OCC) - https://www.occ.treas.gov/
- Depository Institutions Deregulation and Monetary Control Act of 1980 - https://www.congress.gov/bill/96th-congress/senate-bill/2036
