National University of Modern Languages
Submitted to: Miss Maimoona Sajid
Submitted by: Affan Ahmad
Roll no: LCM-4091 BBA-V (Mor.)
Topic: Thrift Industry
Subject: Modern Money & Banking
Thrift Industry
Thrift industry includes all the financial institutions and banks that specialize in offering savings
accounts and originating home mortgages for consumers. Thrift banks are also sometimes
referred to as Savings and Loan Associations (S&Ls). Thrift banks differ from larger
commercial banks, like Wells Fargo or Bank of America, because they usually offer higher
yields on savings accounts and provide limited lending services to businesses.
These financial institutions primarily accept deposits from individual savers and loan funds for
home mortgages. These include savings and loan associations, savings banks and credit unions
Thrift institutions:
A thrift institution is a financial institution formed primarily to accept consumer deposits and
make home mortgages. Thrifts are generally smaller, local institutions and don't have the reach
or resources of a large national bank. The primary types of thrift institutions are mutual
banks and savings and loan associations.
Thrift institutions often pay out more in dividends (interest) than do traditional financial
institutions and have access to lower-cost funds from organizations like Federal Home Loan
Banks. Thrift institutions are more community-focused than other types of financial institutions
and tend to focus more on consumers than businesses. By law, thrifts must have 65% of their
lending portfolio tied up in consumer loans. Since financial services have become increasingly
deregulated, thrift institutions have been able to offer more services to businesses, however.
Thrifts offer customers many of the same deposit products you can get at a bank, such as
checking accounts, savings accounts, and certificates of deposit, as well as credit products such
as home and auto loans and credit cards.
History
Thrift institutions first opened amid the economic change and social upheaval of the Industrial
Revolution. Profit was not their primary concern. Their main goal was to give working people a
secure place to set aside some money for “a rainy day.” Most were founded and managed by
public-spirited citizens of means who understood the ways of finance and were eager to help
working-class people.
Millions of Americans in the postwar era bought homes with loans from thrifts; at one point in
the postwar period, they were making the majority of mortgages in the U.S. That changed with
the deregulation of the financial services industry, followed by a wave of failures in the
Crises
FOR THE SECOND TIME this decade, the thrift industry is in crisis. Once again thrift industry
performance is deteriorating, failures are widespread, the regulators are besieged, and Congress
has passed major banking legislation following protracted debate. Indeed, the current difficulties
will be harder and more costly to resolve than those of the early 1980s. The implications-for
competition in financial services, availability of funds for housing, and federal budget
expenditures-are profound. We begin our paper with a review of the thrifts' difficulties, from
signs of trouble in the 1970s to the contemporary attempts to shore up the deposit insurance
fund. In doing so, we show how regulatory forbearance during the early 1980s turned an initial
crisis, caused by the thrift industry's undiversified portfolio of fixed-rate, long-term mortgages,
into a near-disaster, in which hundreds of insolvent thrifts continue to operate. We assess the
policy response to the current crisis and make recommendations of our own. Finally, we show
how the recently deregulated thrift industry has been diversifying and moving away from its
traditional role. We also discuss the outlook for the thrift industry in the context of regulatory
reform, innovation, and competition.
