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A savings and loan association is a financial institution which specializes in accepting savings deposits and making mortgage loans. The term is mainly used in the United States; similar institutions in the United Kingdom and some Commonwealth countries are called building societies. They are often mutually held (often called mutual savings banks), meaning that the depositors and borrowers are members with voting rights and have the ability to direct the financial and managerial goals of the organization. It is possible for a savings and loan to be stock-based and even publicly traded. This means, however, that it truly no longer is an association and depositors and borrowers no longer have any managerial control.

Contents 1 Early history of the savings and loan association 2 The savings and loan in the 20th century (in the U.S.) 2.1 Mortgage lending 2.2 Further advantages 2.3 Decline 3 The characteristics of savings and loan associations 4 References 5 See also 6 External links

At the beginning of the 19th century, banking was still something only done by those that had assets or wealth that needed safekeeping. The first savings bank in the United States, the Philadelphia Savings Fund Society, was established on December 20, 1816, and by the 1830s such institutions had become widespread. Savings and loans accepted deposits and used those deposits, along with other capital that was in their possession, to make loans. What was revolutionary was that the management of the savings and loan was determined by those that held deposits and in some instances had loans. The amount of influence in the management of the organization was determined based on the amount on deposit with the institution.

The overriding goal of the savings and loan association was to encourage savings and investment by common people and to give them access to a financial intermediary that otherwise had not been open to them in the past. The savings and loan was also there to provide loans for the purchase of large ticket items, usually homes, for worthy and responsible borrowers. The early savings and loans were in the business of "neighbors helping neighbors".

In the United Kingdom, the first savings bank was founded in 1810 by the Reverend Henry Duncan, Doctor of Divinity, the minister of Ruthwell Church in Dumfriesshire, Scotland. It is home to the Savings Bank Museum, in which there are records relating to the history of the savings bank movement in Great Britain, as well as family memorabilia relating to Henry Duncan and other prominent people of the surrounding area. However the main type of institution similar to U.S. savings and loan associations in the United Kingdom is not the savings bank, but the building society and had existed since the 1770s.

The savings and loan association became a strong force in the early 20th century through assisting people with home ownership, through mortgage lending, and further assisting their members with basic saving and investing outlets, typically through passbook savings accounts and term certificates of deposit.

The earliest of mortgages were not offered by banks, but by insurance companies, and they differed greatly from the mortgage or home loan that is familiar today. Most early mortgages were short term with some kind of balloon payment at the end of the term, or they were interest-only loans which did not pay anything toward the principal of the loan with each payment. As such, many people were either perpetually in debt in a continuous cycle of refinancing their home purchase, or they lost their home through foreclosure when they were unable to make the balloon payment at the end of the term of that loan.

The US Congress passed the Federal Home Loan Bank Act in 1932, during the Great Depression. It established the Federal Home Loan Bank and associated Federal Home Loan Bank Board to assist other banks in providing funding to offer long term, amortized loans for home purchases. The idea was to get banks involved in lending, not insurance companies, and to provide realistic loans which people could repay and gain full ownership of their homes.

Savings and loan associations sprung up all across the United States because there was low-cost funding available through the Federal Home Loan Bank for the purposes of mortgage lending.

Savings and loans were given a certain amount of preferential treatment by the Federal Reserve in as much as they were given the ability to pay higher interest rates on savings deposits compared to a regular commercial bank. The idea was that with marginally higher savings rates, savings and loans would attract more deposits that would allow them to continue to write more mortgage loans which would keep the mortgage market liquid and funds would always be available to potential borrowers.

However, savings and loans were not allowed to offer checking accounts until the late 1970s. This reduced the attractiveness of savings and loans to consumers, since it required consumers to hold accounts across multiple institutions in order to have access to both checking privileges and competitive savings rates.

During the Savings and Loan Crisis, from 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645. ^[1] This was primarily, but not exclusively, do to unsound real estate lending. ^[2]

The most important purpose of these institutions is to make mortgage loans on residential property. These organizations, which also are known as savings associations, building and loan associations, cooperative banks (in New England), and homestead associations (in Louisiana), are the primary source of financial assistance to a large segment of American homeowners. As home-financing institutions, they give primary attention to single-family residences and are equipped to make loans in this area.

Some of the most important characteristics of a savings and loan association are:

1. It is generally a locally owned and privately managed home financing institution.
2. It receives individuals' savings and uses these funds to make long-term amortized loans to home purchasers.
3. It makes loans for the construction, purchase, repair, or refinancing of houses.
4. It is state or federally chartered^[3].

1. ^ http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf
2. ^ http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
3. ^ Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin, 123-124. ISBN 0-256-13948-2. 

• Cooperative banking
• Savings and Loan crisis

• Office of Thrift Supervision