Thrift Institutions Flashcards

Study Notes

Thrifts

Originated in the early 1800s to support individual home purchases.
Involved pooling savings from individuals to invest in mortgages.
Include savings associations, savings banks, and credit unions.

Types of Thrift Institutions

Savings Associations: Focus primarily on residential mortgages; mostly federally chartered.
Savings Banks:
- Significant concentration in residential mortgages.
- Also engage in commercial loans, corporate bonds, and stocks; state chartered and least prevalent.
Credit Unions: Fund consumer loans through member deposits; largest number among thrifts and mostly federally chartered.

Savings Associations (S&L Associations)

Offer long-term residential mortgages using short-term deposits from small savers.
Shift in monetary policy during 1979-1982 affected bank reserves rather than interest rates and contributed to inflated interest rates, leading to an inverted yield curve.
Resulted in negative net interest margins for S&Ls.

Disintermediation

The practice of withdrawing deposits from depository institutions to invest elsewhere, such as money market mutual funds.

Regulation Q Ceiling

An imposed interest ceiling on small savings and time deposits at banks and thrifts until 1986.
Led to increased withdrawals as market interest rates offered better returns.

Deregulation Acts

Depository Institutions Deregulation and Monetary Control Act (DIDMCA) and Garn-St.Germain Depository Institutions Act (1980-1982): Expanded deposit-taking and investment powers of S&Ls.
Allowed for Negotiable Order of Withdrawal (NOW) accounts and Money Market Deposit Account (MMDA).

Savings Associations in the Mid-1980s

Increased risk-taking by S&Ls due to new regulatory changes post-DIDMCA and GSGDIA.

Regulator Forbearance

Policy by the FSLIC that allowed financially insolvent financial institutions to continue operations without closure.

Savings Institutions

A collective term that encompasses both savings associations and savings banks.

QTL Test

The Qualified Thrift Lender test requires thrifts to maintain at least 6.5% of their assets in mortgage-related investments.

Savings Banks

Originally formed as mutual organizations, primarily located in East Coast and New England states.
FDIC insures deposits under the Bank Insurance Fund.
Tend to rely less on deposits compared to savings associations.

Office of Thrift Supervision

Established in 1989 through FIRREA; responsible for chartering and examining federal savings institutions and supervising their holding companies.

Credit Unions

Non-profit depository institutions owned and organized by their members.
Maintain high levels of equity; growth is not a primary goal.
Earnings from loans are used to pay interest on member deposits.

Description

Explore the key concepts of thrift institutions through a series of flashcards. These include terms related to savings associations, savings banks, and credit unions. Perfect for anyone looking to understand how these institutions function in the context of home purchasing.