Financial institutions such as building societies and trustee savings banks form part of a group of institutions that basically offer various types of loans which include mortgage loans and also handle savings deposits.
These commercial institutions deploy the majority of their funds into mortgage loans and consumer loans as required by the law. They came into being at the beginning of the 20th century when they were considered to be particularly useful to aspiring home owners. Ordinary citizens benefitted due to the provision of savings accounts and term certificates of deposit.
Savings banks belong to a different group of financial institutions, and even though they were previously restricted to offering savings accounts, they now enjoy extensive operational allowances that extend beyond the traditional legal definition of savings banks.
Banks falling under this category can issue credit cards, provide overdraft, issue checks, bank drafts, internal banking, safe deposit boxes, security underwriting and currency exchange among other services.
Savings and loan associations on the other hand, are usually federally chartered, accept savings and uses them to advance mortgage loans to prospective home buyers, and also issue loans for the repair, re-financing of houses or construction.
The savings and loan organizations are known by various names such as homestead associations, cooperative banks, savings associations or building and loan associations. They are mainly operational in countries which include Ireland, United Kingdom, the United States and some Commonwealth member states.
Savings and loan associations as they are commonly called at one time enjoyed central bank support (Federal Reserve), and this enabled them to offer their savings accounts clients higher interests on deposits. This was done in an effort to boost the revenue capacity of such financial institutions to offer more mortgage loans.
However, the road was not always smooth for the S&L associations or ‘thrifts’ as they are sometimes known. Between 1986 and 1995 they ran into a specialized savings and loans storm, which hit them where it hurts the most – in the coffers.
And a synchronized industry wide decline followed, and the real reasons behind the crisis were multi-dimensional. Some of the losses were as a result of insider fraudulent activities, inaccurate loan business evaluations, bad lending practices, market saturation, inaccurate forecasts on cost of money, the rate of return on assets and the lack of net worth by many institutions.
Changes initiated afterwards centered on the contributions of regulatory bodies and frameworks designed to promote professionalism in the industry.