This chapter begins to explain the role of central banks in our economic and financial system. It will describe the origins of modern central banking. It will examine the complexities policymakers now face in meeting their responsibilities. It will highlight a central question that has become politically controversial: what is the proper relationship between a central bank and the government? | Chapter 15 Nonbank Thrift Institutions: Savings & Loans, Savings Banks, Credit Unions, and Money Market Funds Learning Objectives To see the significant roles that thrift institutions play in the functioning of a modern economy and financial system. To learn about the types of services that thrift institutions offer to the public and who their principal competitors are. To understand the principal similarities and differences among the major types of thrift institutions. Introduction Nonbank financial institutions play a vital role in the flow of money and credit within the financial system, especially the home mortgage market and the market for personal savings. Recently however, both bank and nonbank financial institutions are “converging” in terms of the services they offer and the markets they serve. Savings and Loan Associations Savings and loan associations (S&Ls) are among the largest of all thrift institutions, accepting deposits and extending loans and other services . | Chapter 15 Nonbank Thrift Institutions: Savings & Loans, Savings Banks, Credit Unions, and Money Market Funds Learning Objectives To see the significant roles that thrift institutions play in the functioning of a modern economy and financial system. To learn about the types of services that thrift institutions offer to the public and who their principal competitors are. To understand the principal similarities and differences among the major types of thrift institutions. Introduction Nonbank financial institutions play a vital role in the flow of money and credit within the financial system, especially the home mortgage market and the market for personal savings. Recently however, both bank and nonbank financial institutions are “converging” in terms of the services they offer and the markets they serve. Savings and Loan Associations Savings and loan associations (S&Ls) are among the largest of all thrift institutions, accepting deposits and extending loans and other services primarily to household customers. S&Ls emphasize longer-term loans, especially mortgage loans. Savings and Loan Associations S&Ls began essentially as a single-product industry in the early 19th century, accepting savings deposits from middle-income individuals and families and lending those funds to home buyers. Later, competition from other financial institutions, deregulation, and many failures, forced S&Ls to diversify their operations and aggressively solicit new customers. Savings and Loan Associations Savings and Loan Associations Savings and Loan Associations The size of the savings industry peaked in 1988, when total financial assets reached $1,640 billion. The sharp decline that followed was the result of large numbers of failures and the conversion of some S&Ls into other kinds of financial institutions, most notably commercial banks and savings banks. Savings and Loan Associations One primary cause for the low profitability of S&Ls during the 1980s and 1990s was that many S&L .
