What is Federal Savings and Loan

A federal savings and loan institution is a type of thrift banking institution that has historically been focused on offering savings and loan products. These companies are typically private businesses, mutually owned by their customers however they can also be publicly traded.

BREAKING DOWN Federal Savings and Loan

Federal savings and loan entities emerged following the Federal Home Loan Bank Act of 1932 which also established the Federal Home Loan Banking system. These businesses were part of the regulatory movement following the Great Depression. The Federal Home Loan Bank Act and Federal Home Loan Banks created a supporting infrastructure for the development of federal savings and loan entities across the United States.

Business Structuring

Federal savings and loan businesses are a type of thrift which also encompasses credit unions and mutual savings banks. Most federal savings and loan businesses will be structured as a mutual company which allows them numerous benefits. As a mutual company the business is owned and funded by its members. This mutual structure also allows businesses to offer more competitive rates on credit products.

Federal savings and loan entities differ from other types of thrifts in that they generally do not target specific affiliations. Generally federal savings and loan institutions are open to any individual that chooses to meet the minimum requirements for membership. In mutual companies the members are involved in the operations of the business and cooperatively establish all business terms. These businesses can also choose to trade publicly however this requires a more comprehensive financial reporting structure.

Since they’re establishment, federal savings and loans have been supported by the Federal Home Loan Bank system which has 11 Federal Home Loan Banks (FHLB) regionally located throughout the U.S. the FHLB system’s purpose is to provide low cost funding for all types of mortgage lending institutions in order to stimulate mortgage lending nationwide.

Federal savings and loan entities are governed by specific regulations and must also adhere to nationwide banking regulations. In the 1970s they were given approval to offer checking accounts which broadened their product offerings. These businesses and thrifts in general have historically had varying regulations that specify business variables such as savings interest rates and lending constraints.

Modern Day Federal Savings and Loan Entities

Federal savings and loan associations reached their heyday in the mid-1980s after being deregulated just a few years earlier. However, in response to the scandalous failure of a number of prominent savings and loans, including Charles Keating's Lincoln Savings and Loan, participation in savings and loans began to dwindle by the early 1990s. In reaction to the growing insolvency of the savings and loan industry, the government reestablished stronger oversight and created the Office of Thrift Supervision in 1989. This regulatory body, itself a division of the Treasury Department, helps to ensure the safety and stability of member savings and loans. As part of the act that created this agency, savings and loan deposits came under the protection of the Federal Deposit Insurance Corporation (FDIC) and remains so today.