What Is a Savings and Loan Association (S&L)?

Savings and Loan Associations (S&Ls), often called “thrifts,” are financial institutions that historically focused on accepting savings deposits. Their primary purpose was to channel these funds into residential mortgage loans, facilitating homeownership in the United States.

Understanding Savings and Loan Associations

Savings and Loan Associations were created to promote homeownership, especially when commercial banks did not widely offer residential mortgages. The initial S&Ls emerged in the 1800s as cooperative organizations where members pooled savings to finance home purchases. This model helped ordinary families access home financing.

The operational model of S&Ls centered on attracting deposits from the public, primarily through savings accounts. These deposits formed the main source of funds that S&Ls then lent out as long-term residential mortgages. Many S&Ls were organized as mutually held institutions, meaning their depositors and borrowers were considered members with voting rights. This structure fostered a community-oriented approach, providing a safe place for local savings and a dedicated source for housing finance.

Distinguishing from Commercial Banks

Savings and Loan Associations historically differed from commercial banks primarily in their specialized focus and operational scope. S&Ls concentrated almost exclusively on providing residential mortgage loans, with legal restrictions often limiting the percentage of their assets that could be allocated to commercial lending. Commercial banks, by contrast, offered a much broader range of financial services, including diverse lending for commercial and industrial purposes, consumer loans, and a wider array of deposit accounts and transaction services.

Another key distinction lay in their historical deposit-taking activities. While both types of institutions accepted deposits, S&Ls were traditionally known for offering savings accounts and were initially restricted from offering checking accounts, a service predominantly provided by commercial banks until later deregulation. Commercial banks typically operated as for-profit businesses owned by shareholders, whereas many S&Ls were mutually owned by their depositors and borrowers, fostering a different governance structure.

Regulatory Framework

The regulatory oversight of Savings and Loan Associations was historically distinct, designed to support their specialized role in housing finance. Key federal agencies involved in their supervision included the Federal Home Loan Bank Board (FHLBB), which governed the Federal Home Loan Banks and nationally-chartered thrifts. The FHLBB also supervised the Federal Savings and Loan Insurance Corporation (FSLIC), which was established in 1934 to provide deposit insurance for S&L institutions, similar to how the FDIC insured commercial bank deposits.

S&Ls were subject to specific regulations, including interest rate ceilings that limited the interest rates they could pay on deposits. They also faced lending limits that mandated a significant portion of their assets be invested in residential mortgages, typically requiring at least 65% of their assets in residential mortgages. These regulations aimed to ensure S&Ls fulfilled their mandate of providing affordable home financing.

Major Historical Developments

Savings and Loan Associations experienced a period of significant growth and prominence in the early to mid-20th century, particularly after the passage of the Federal Home Loan Bank Act in 1932. This legislation created a system to provide funding to S&Ls, enabling them to offer long-term, amortized home loans, thereby boosting homeownership. However, economic shifts in the late 1970s and early 1980s, marked by high inflation and rising interest rates, posed severe challenges for S&Ls. Their earnings on long-term, fixed-rate mortgages, issued at lower rates, could not keep pace with the rising costs of attracting deposits, leading to substantial losses.

In response, Congress passed the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980, which allowed S&Ls to offer a wider range of services, including checking accounts and consumer and commercial loans. The Garn-St. Germain Act of 1982 further expanded their lending authority. This deregulation, coupled with insufficient oversight and, in some cases, mismanagement, led many S&Ls to engage in riskier investments, such as commercial real estate and junk bonds. The resulting failures of hundreds of S&Ls in the late 1980s culminated in the Savings and Loan Crisis, necessitating a substantial taxpayer-funded bailout. In response, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 abolished both the FSLIC and the FHLBB, transferring deposit insurance responsibilities to the Federal Deposit Insurance Corporation (FDIC) and restructuring the regulatory landscape for thrifts.

Modern Presence

The Savings and Loan industry underwent substantial transformation following the crisis of the 1980s, leading to a diminished, though still existing, presence today. Many S&Ls either converted their charters to become commercial banks or were acquired by larger financial institutions. This shift led to a blurring of the lines between traditional thrifts and commercial banks, with many former S&Ls now operating under a broader banking model.

While the term “Savings and Loan” is less common than in previous decades, some institutions continue to operate under this designation or as “savings banks.” As of the first quarter of 2025, approximately 546 federally insured savings associations remained in the U.S. These institutions often retain a focus on residential mortgage lending and community engagement, while also offering a range of basic banking services such as checking and savings accounts. Their current role often emphasizes personalized service and a continued specialization in home financing within their local communities.