depository financial institution, federally or state chartered, that obtains the bulk of its deposits from consumers and holds the majority of its assets as home mortgage loans. A few such specialized institutions were organized in the 19th century under state charters but with minimal regulation. Reacting to the crisis in the banking and home building industries precipitated by the Great Depression, Congress in 1932 passed the Federal Home Loan Bank Act, establishing the federal home loan bank system to supplement the lending resources of state-chartered savings and loans (S&Ls). The Home Owners’ Loan Act of 1933 created a system for the federal chartering of S&Ls under the supervision of the Federal Home Loan Bank Board. Deposits in federal S&Ls were insured with the formation of the Federal Savings and Loan Insurance Corporation in 1934. A second wave of restructuring occurred in the 1980s. The depository institutions deregulation and monetary control act of 1980 set a six-year timetable for the removal of interest rate ceilings, including the S&Ls’ quarter-point rate advantage over the commercial bank limit on personal savings accounts. The act also allowed S&Ls limited entry into some markets previously open only to commercial banks (commercial lending, nonmortgage consumer lending, trust services) and, in addition, permitted mutual associations to issue investment certificates. In actual effect, interest rate parity was achieved by the end of 1982. The Garn-St Germain Depository Institutions Act of 1982 accelerated the pace of deregulation and gave the Federal Home Loan Bank Board wide latitude in shoring up the capital positions of S&Ls weakened by the impact of record-high interest rates on portfolios of old, fixed-rate mortgage loans. The 1982 act also encouraged the formation of stock savings and loans or the conversion of existing mutual (depositor-owned) associations to the stock form, which gave the associations another way to tap the capital markets and thereby to bolster their net worth.
In 1989, responding to a massive wave of insolvencies caused by mismanagement, corruption, and economic factors, Congress passed the financial institutions reform, recovery and enforcement act of 1989 (FIRREA) that revamped the regulatory structure of the industry under a newly created agency, the office of thrift supervision (OTS). Disbanding the federal savings and loan insurance corporation (FSLIC), it created the savings association insurance fund (SAIF), which later merged with the bank insurance fund (BIF) to form the deposit insurance fund (DIF) under the administration of the federal deposit insurance corporation (FDIC). It also created the resolution trust corporation (RTC) and resolution funding corporation (REFCORP) to deal with insolvent institutions and scheduled the consolidation of their activities with SAIF after 1996. The Federal Home Loan Bank Board was replaced by the Federal Housing Finance Board, which in 2008 was replaced by the federal housing finance agency (FHFA).
See also Savings Bank.
Dictionary of Finance and Investment Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
