This chapter covers insurance, insurance companies, and pensions. Insurance and retirement plans play an important role in providing economic security. They are also important in the capital formation and financial intermediation process. | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 17 THRIFT INSTITUTIONS AND FINANCE COMPANIES Institutions Covered Thrift Institutions Savings Associations (or S&Ls) Savings Banks Credit Unions Finance Companies Historical Origins of Thrifts Mutual Savings Banks were developed in the 1800s because commercial banks did not serve the needs of small savers. Eventually Mutual Savings Banks invested most of their deposits in mortgage loans. Mutual Savings and Loan Associations and Building Societies were also started in the 1800s by groups of people who pooled their savings so that each would eventually be able to acquire a house. Recent History of Thrifts Stockholder-owned savings and loan associations were relatively uncommon until the late 1970s and 1980s when pressure to attract more capital encouraged many mutual S&Ls to convert to stock form. Stock S&Ls outnumber mutuals today. Assets of stock S&Ls are many times as large as the assets of mutual S&Ls. Exhibit : Number of Thrift Institutions Source: Office of Thrift Supervision, 2003 Fact Book, May 2004. Exhibit : Assets of Thrift Institutions Source: Office of Thrift Supervision, 2003 Fact Book, May 2004. Thrift Crisis of the 1980s Classic model of thrift management involved a negative maturity GAP: Short-to-medium term fixed-rate savings deposits financing Medium-to-long-term fixed-rate mortgages Thus the sharp interest rate increases of the early 1980s decimated the industry The problem was compounded by unsound lending practices and other forms of mismanagement Regulation of Thrifts Savings bank regulators— Federal regulator: Office of Thrift Supervision Insurer: FDIC-SAIF Savings association (S&L) regulators— Federal regulator: OTS Insurer: FDIC-either subsidiary, depending on prior | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 17 THRIFT INSTITUTIONS AND FINANCE COMPANIES Institutions Covered Thrift Institutions Savings Associations (or S&Ls) Savings Banks Credit Unions Finance Companies Historical Origins of Thrifts Mutual Savings Banks were developed in the 1800s because commercial banks did not serve the needs of small savers. Eventually Mutual Savings Banks invested most of their deposits in mortgage loans. Mutual Savings and Loan Associations and Building Societies were also started in the 1800s by groups of people who pooled their savings so that each would eventually be able to acquire a house. Recent History of Thrifts Stockholder-owned savings and loan associations were relatively uncommon until the late 1970s and 1980s when pressure to attract more capital
