Savings and loan association is a type of savings institution in the United States. Savings and loans mainly provide funds to pay for building or buying homes. They also promote saving. Savings and loans used to be called building and loan associations, homestead associations, or cooperative banks. Some savings and loan associations are mutual institutions—that is, they are owned and operated by depositors. Others are owned and operated by stockholders.
Traditionally, savings and loans provided most of the funds for building, buying, or remodeling homes in the United States. Today, they still fund many home mortgages, but they also make consumer and commercial loans and invest directly in real estate.
Savings and loans also offer a wide range of other financial services for individuals and businesses. These services include checking accounts, savings accounts, individual retirement accounts (IRA’s), insurance, and stock and real estate brokerage services. The Federal Deposit Insurance Corporation insures deposits at nearly all U.S. savings and loan associations. In most cases, up to $250,000 per depositor is insured.
The first savings and loan association in the United States opened in Pennsylvania in 1831. During the 1980’s and early 1990’s, the savings and loan industry experienced its worst financial crisis since the Great Depression of the 1930’s. More than 1,000 savings and loans failed, and hundreds of others were near bankruptcy. The crisis resulted from a number of factors. They included mismanagement and fraud within the industry, competition from other types of financial service firms, poor regulation, and the failure of customers to repay their loans. Many customers could not repay loans because of an economic recession in U.S. agriculture and in the country’s petroleum industries.
In 1989, the U.S. Congress passed legislation to end the crisis and to prevent such a crisis from occurring again. The legislation was designed to close or sell all the troubled savings and loans, place greater restrictions on savings and loans’ activities, and restore the funds used to insure deposits in savings and loans. Ending the crisis resulted in costs to taxpayers of many billions of dollars.
