Savings and Loan Association (S&L)

Definition

A Savings and Loan Association (S&L), also known as a thrift, is a financial institution that is legally obligated to prioritize residential mortgage lending. These institutions typically operate similarly to banks but are focused more specifically on personal savings and real estate loans, especially home mortgages.

Examples

Local Community Thrift Banks: Such small-scale institutions typically serve defined communities, offering home loans to residents and accepting their deposits to fund operations.
Federal Savings and Loan Association: A federally chartered institution regulated by the Office of the Comptroller of the Currency (OCC) which provides mortgages primarily.
Online S&Ls: Some modern S&Ls operate online, aiming to reduce operational costs and provide better rates on savings accounts and home loans.

Frequently Asked Questions

What is the primary purpose of an S&L?
- The primary purpose of an S&L is to provide home loans and accept savings deposits from customers.
Are S&Ls different from banks?
- Yes, S&Ls are mandated to channel more of their funds into mortgage lending, whereas banks have a broader lending spectrum, including commercial and industrial loans.
How are S&Ls regulated?
- S&Ls that are federally chartered are regulated by the Office of the Comptroller of the Currency (OCC), while state-chartered S&Ls are overseen by state regulatory agencies.
What types of loans do S&Ls typically offer?
- S&Ls primarily offer residential mortgage loans but may also provide other personal loans and loans for construction purposes.
Can S&Ls offer checking accounts?
- Yes, many S&Ls offer checking accounts along with their primary savings and loan products, though some focus solely on savings accounts and loans.

Mortgage: A loan typically used to purchase real estate, where the property is used as collateral.
Thrift Institution: Another term often used interchangeably with Savings and Loan Association, emphasizing the focus on savings and home loans.
Credit Union: A member-owned financial cooperative offering savings, loans, and other financial services to its members.
Commercial Bank: A type of financial institution that offers a full range of banking services including loans, deposits, and currency exchange.

Online Resources

References

“Savings and Loan Crisis”, Investopedia, https://www.investopedia.com/terms/s/sl-crisis.asp
“Understanding Thrift Institutions and Savings Banks”, Federal Reserve, https://www.federalreserve.gov

Suggested Books for Further Studies

“The Savings and Loan Crisis: Lessons and Experiences from the Bench” by Lawrence B. Lindsey
“Thrift: A Guide to the Savings Industry” by Timothy J. Critchfield
“Financial Institutions Management: A Risk Management Approach” by Anthony Saunders

Real Estate Basics: S&L Fundamentals Quiz

### What is the main regulatory agency for federal S&Ls? - [ ] Federal Reserve - [x] Office of the Comptroller of the Currency (OCC) - [ ] Internal Revenue Service (IRS) - [ ] Securities and Exchange Commission (SEC) > **Explanation:** Federally chartered S&Ls are regulated by the Office of the Comptroller of the Currency (OCC). This agency oversees their operations and ensures they meet necessary guidelines and standards. ### Can S&Ls provide commercial loans? - [ ] No, they are strictly for residential mortgage loans. - [x] Yes, but they primarily focus on residential mortgages. - [ ] Only for small businesses. - [ ] It depends on the state regulations. > **Explanation:** While S&Ls primarily focus on residential mortgage loans, they can also provide some commercial loans, though this is not their main purpose. ### What financial crisis prominently involved S&Ls? - [ ] The 2008 Financial Crisis - [ ] The Dot-com Bubble - [x] The Savings and Loan Crisis of the 1980s and 1990s - [ ] The Great Depression > **Explanation:** The Savings and Loan Crisis of the 1980s and 1990s involved significant financial turmoil and the failure of many S&Ls, leading to reforms in regulation. ### Which financial product is most commonly associated with S&Ls? - [ ] Business loans - [ ] Credit cards - [x] Mortgages - [ ] Auto loans > **Explanation:** Mortgages are the financial product most commonly associated with S&Ls, as these institutions prioritize home loan lending. ### Do S&Ls offer higher interest on savings accounts compared to commercial banks? - [x] Often yes, to attract more depositors. - [ ] No. - [ ] They offer the same. - [ ] It varies significantly. > **Explanation:** S&Ls often offer higher interest rates on savings accounts to attract depositors, as they primarily depend on these deposits to fund mortgage loans. ### What distinguishes a thrift institution from a commercial bank? - [ ] The type of loans offered - [ ] The size of operations - [x] The focus on personal savings and residential mortgages - [ ] The geographic location > **Explanation:** Thrift institutions like S&Ls are distinguished by their focus on personal savings and residential mortgages, whereas commercial banks have a broader spectrum including commercial loans. ### Did S&Ls play a role in the 2008 financial crisis? - [x] Yes, but not as significant a role as in the 1980s crisis. - [ ] No, they were unaffected. - [ ] They were the major factor. - [ ] Only a few were involved. > **Explanation:** S&Ls did play a role, but their involvement in the 2008 financial crisis was not as impactful as it was during the Savings and Loan Crisis of the 1980s. ### Are state-chartered S&Ls regulated by federal agencies? - [ ] Yes, the OCC regulates all S&Ls regardless of their charter. - [ ] Only during federal audits. - [x] No, state regulatory agencies oversee state-chartered S&Ls. - [ ] It depends on their size. > **Explanation:** State-chartered S&Ls are regulated by state regulatory agencies, not federal agencies such as the OCC. ### Which term is often used interchangeably with S&L? - [ ] Investment bank - [ ] Merchant bank - [x] Thrift institution - [ ] Credit union > **Explanation:** The term 'thrift institution' is often used interchangeably with 'Savings and Loan Association (S&L)'. ### What was a significant outcome of the Savings and Loan Crisis? - [ ] Abolition of S&Ls - [x] Changes in the regulation and oversight of S&Ls - [ ] Merging of all S&Ls into commercial banks - [ ] Establishment of new S&Ls > **Explanation:** The Savings and Loan Crisis resulted in changes in the regulation and oversight of S&Ls to prevent future crises of a similar nature.