Unitary Thrift

What Is a Unitary Thrift?

A unitary thrift is a chartered holding company that controls a single thrift entity. Historically, unitary thrifts could engage in a broader range of activities than bank holding companies, however, they have come under increasing restrictions since the 2008 financial crisis.

Key Takeaways

  • Unitary thrifts is another name for savings and loan holding companies.
  • These types of companies focus on a range of thrift investments or products.
  • Unitary thrifts are focused on their customers and communities, providing personal banking products like savings accounts, credit cards, home, and automobile loans.
  • The range of products offered by unitary thrift companies is usually narrower than larger banking institutions.
  • The entire savings and loan industry faced a financial crisis in the 1980s due to risky financial activities to protect them from losses from the interest rates for money market accounts in the late 1970s.

Understanding a Unitary Thrift

Unitary thrifts, also known as savings and loan holding companies, or SLHCs, are a type of holding company that mainly holds assets in thrift investments. Thrift institutions, also known as savings and loan associations, offer a narrower range of products than other financial institutions.

Unitary thrifts focus on customer and community service, which typically means they deal with traditional basic banking products, such as savings and checking accounts, home loans, personal loans, automobile loans, and credit cards.

These thrifts are more limited in these areas, such as providing loans for single-family homes as opposed to larger real estate ventures. Similarly, they focus on individuals and have only limited dealings with businesses. Thrifts are required by law to maintain 65% of their portfolio in assets related to housing or other qualified assets while they are only allowed to have 10% of assets in commercial loans.

Thrifts have traditionally catered towards the middle- and working-class and offer higher interest rates on savings than larger, national banks. The reason they can offer better rates is because that they can borrow at lower rates from the Federal Home Loan Banking System.

Savings and Loan Ownership Structures

Unitary thrifts represent one of the two ownership models for savings and loan companies. Unitary thrifts offer a small group of investors a way of controlling a savings and loan through the purchase of stock in the holding company that owns the thrift.

Due to the liberalization of lender tests, a variety of financial institutions are able to own depository institutions. These include insurance companies and commercial companies. These entities can buy thrifts, becoming a holding company, and the owners of these companies gain exposure to the thrift.

The other ownership model is a mutual ownership structure, where depositors and borrowers receive part ownership of the savings and loans when they engage in business with the company.

Regulatory History of Unitary Thrifts

Because thrifts tended to serve customer needs rather than investor desires, they initially operated under less regulatory oversight, and prior regulatory regimes allowed unitary thrifts to open branches anywhere in the United States.

Savings and Loan Crisis

In the 1980s, the savings and loan industry underwent a crisis after thrifts engaged in risky financial activities in an attempt to cover losses caused by depositors who moved their cash from thrifts to money market funds as interest rates boomed in the late 1970s.

By 1989, much of the industry had collapsed after failed thrifts caused the insolvency of the Federal Savings and Loan Insurance Corporation (FSLIC), which insured deposits.

Due to regulatory changes and mergers, thrift banks are not as prominent as they once were.

The Financial Services Modernization Act of 1999, also known as the Gramm Leach Bliley Act, forbade the Office of Thrift Supervision (OTS) from accepting any new applications for unitary thrifts. Since that time, the federal government has increased restrictions on the remaining unitary thrifts.

2008 Financial Crisis

After the 2008 financial crisis, sweeping regulation was made across the financial industry. The passage of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 eliminated the OTS in 2011, which suffered from implications of wrongdoing in the collapse of IndyMac and the failure of AIG during the 2008 financial crisis.

Dodd-Frank passed supervision of legacy unitary thrifts to other federal agencies and the goal was that savings and loan holding companies (SLHCs) would be treated almost like bank holding companies (BHCs) with only a few distinctions. This would allow for more oversight over thrifts.

Much of the legislation impacted controlling and non-controlling ownership of thrift holding companies, the composition of capital, an introduction of new capital ratios, as well as new liquidity ratios. There are also other criteria, such as being "well-managed" and "well-capitalized."

What Is a Unit Bank?

A unit bank is a small, local bank that provides banking services to a small community in the region it is located. Unit banks stand in contrast to large, national banks that provide a vast array of services to millions of customers through different branches. A unit bank does not have any other locations or branches and is a standalone entity.

What Is the Difference Between a Unit Bank and a Branch Bank?

A unit bank is one, single bank that provides simple banking services to its clients, such as checking and savings accounts and small loans. A branch bank, on the other hand, is part of a larger bank that operates in multiple locations across the country or specific region through its many bank branches. Unit banks are not connected to any other financial entity in the way bank branches are connected to one another.

What Services Do Thrift Banks Provide?

Thrift banks provide simple banking services, such as checking and savings accounts, mortgage loans, personal loans, and credit cards.

Article Sources
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  1. State of Connecticut. Department of Banking. "ABCs of Banking." Accessed Feb. 14, 2022.

  2. Federal Deposit Insurance Corporation. "The S&L Crisis: A Chrono-Bibliography." Accessed Feb. 14, 2022.

  3. Federal Reserve History. "Savings and Loan Crisis." Accessed Feb. 14, 2022.

  4. Federal Reserve History. "Financial Services Modernization Act of 1999, Commonly Called Gramm-Leach-Bliley." Accessed Feb. 14, 2022.

  5. Harvard Law School Forum on Corporate Governance. "New Dodd-Frank Regulatory Framework for Thrift Institutions." Accessed Feb. 14, 2022.

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