A savings and loan, also sometimes known as a thrift, is a financial institution which focuses on providing interest-bearing savings accounts and certificates of deposit to its members, while also offering home loans. The idea behind a savings and loan is that it is supposed to encourage thriftiness on the part of its members while also providing people with the opportunity to access home ownership with the assistance of financing offered through the bank. Such organizations may be community based, or may be larger chain banks.
The earliest savings and loans were started in the 1800s, as part of a larger social movement which was intended to promote responsibility, thriftiness, and the opportunity for social advancement to members of the middle class. This banking model proved to be tremendously popular in many regions of the world. Some institutions were run on a cooperative basis, with profits being returned to members, while others were run as publicly traded companies or private institutions.
In the United States, steps were taken to promote the savings and loan in the 1930s, a period in which many Americans were struggling financially. These steps included some reforms in the way that mortgages were offered and handled, with the goal of making it possible for people to carry mortgages to completion with a reduced risk of foreclosure. By law, a savings and loan had to offer at least 65% of its loans in the form of mortgage loans, making the bulk of its assets mortgages.
In the late 1970s, rumblings in the financial sector had a profound effect on the savings and loan industry, eventually bringing about the savings and loan crisis. The government initiated large-scale deregulation of these institutions, and this combined with radical shifts in real estate values to drive the value of such institutions down. Almost 800 savings and loans failed in the United States during this period, and in some regions, they dragged conventional banks down as well.
Numerous critics have pointed out that the structure of a savings and loan can make it very vulnerable. By law, it cannot diversify its assets, concentrating value in mortgages, which means that it will be highly susceptible to changes in real estate values and shifts in the economy. The decision to deregulate in the 1980s without putting some protective measures in place has been pointed to as the reason why these institutions failed so spectacularly and in such large numbers.