Upload
gerard-doyle
View
218
Download
1
Tags:
Embed Size (px)
Citation preview
Savings Associations and Credit Unions
Savings Associations and Credit Unions
Chapter 16
© 2003 South-Western/Thomson Learning
Slide 2
Learning ObjectivesLearning Objectives Origins, purposes and recent trends in thrifts
– mutual savings banks, savings and loans
and credit unions
Risks faced by thrifts and how they manage
these risks
Similarities and differences among the
sources and uses of funds for savings
associations and credit unions
Primary causes of the S&L crisis and the
regulatory attempts to address it
Slide 3
Savings AssociationsSavings Associations
Created to encourage personal thrift by generating returns for depositors
Took two forms:savings bankssavings and loan
associations
Slide 4
Savings AssociationsSavings Associations
Federal Home Loan Bank Board (FHLBB) Primary federal regulatory agency for savings
associations From 1932 to 1989 Replaced by the Office of Thrift Supervision
(OTS) Federal Savings and Loan Insurance
Corporation (FSLIC) Federal agency that insured deposits of member
savings associations From 1934 until 1989 Replaced by FDIC’s Savings Association
Insurance Fund (SAIF)
Slide 5
Savings BanksSavings Banks
Mutual Savings Bank Lack stockholders Assets are managed to benefit its
collective owners Stock Savings Bank
Savings bank charter Ownership is held by stockholders
Slide 6
Savings & Loan Associations (S&Ls)Savings & Loan Associations (S&Ls)
Purpose to pool savings of local residents to finance construction and purchase of homes
Functioned more like modern-day mutual funds
Over time, concepts of “saving” and “loaning” became viewed as separate services
Regulations and insurance provided to protect consumers
Spread rapidly, but many failed during the 1980s.
Slide 7
Savings & Loan vs Savings BanksSavings & Loan vs Savings Banks
S&Ls located throughout country
Deposits in most S&Ls are insured by Savings Association Insurance Fund
Hold larger share of assets in home mortgages
Typically smaller than savings banks in assets and deposits
Some savings banks insured by state insurance fund programs
Savings banks located predominately on East Coast
On average savings banks hold slightly smaller share of their assets in home mortgages compared to S&Ls
Savings banks are typically larger than S&Ls in terms of assets and deposits
S&Ls Savings Banks
Slide 8
Savings & Loan vs Savings BanksSavings & Loan vs Savings Banks
Office of Thrift Supervision (OTS) Agency created by FIRREA to replace
Federal Home Loan Bank Board as overseer of S&L industry
Slide 9
Savings Association Management of RiskSavings Association Management of Risk
Manage default, interest rate an liquidity risks:
Adjustable- (Variable-) Rate Mortgages Interest rate that is adjusted up or down as cost of funds rises or falls
Slide 10
The S&L CrisisThe S&L Crisis
High interest rate of 1970s Primarily funded long-term mortgage loans
with short-term deposits When interest rates rose, positive spread
could turn negative Thus, savings associations exposed to a great
deal of interest rate risk Problems increased in 1980s
Changes in regulations compounded problems Severe financial crisis developed
More than 1,500 institutions failed or downsized Industry as whole shrunk considerably Taxpayers spent billions to bail out industry
Slide 11
The S&L CrisisThe S&L Crisis
Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) Removed many regulations enacted during the
Great Depression Phased out Regulation Q Established uniform and universal reserve
requirements Increased assets and liabilities depository that
institutions could hold Authorized NOW accounts Suspended usury ceilings
Slide 12
The S&L CrisisThe S&L Crisis
Garn-St. Germain Act of 1982 Along with DIDMCA, deregulated the financial
structure Authorized money market deposit accounts
and Super NOW accounts Money Market Deposit Accounts (MMDAs)
Financial claims with limited check-writing privileges
Offered by banks since 1982 Earn higher interest than checkable deposits Require higher minimum balance
Slide 13
The S&L CrisisThe S&L Crisis
1989, Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) Attempted to resolve problems of widespread
failures within industry and insufficient insurance funds to settle the crisis
Providing funds to resolve S&L crisis Elimination of FHLBB system and the FSLIC Office of Thrift Supervision (OTS) now serves
as primary federal regulatory agency for industry
Slide 14
The S&L CrisisThe S&L Crisis Savings Association Insurance Fund
(SAIF) Created by FIRREA in 1989 Managed by the FDIC Provides insurance for savings
association deposits Replaced defunct FSLIC
Resolution Trust Corporation (RTC) Created by FIRREA in 1989 Dispose of properties of failed S&Ls
Slide 15
Credit UnionsCredit Unions
Cooperative, nonprofit, member-owned, tax-exempt depository institutions operated for the benefit of member savers and borrowers who share common bond.
Slide 16
Credit UnionsCredit Unions
Credit Union National Extension Board (CUNEB) Privately created organization formed in
1921 To expand credit union movement
across country Forerunner to the CUNA
Slide 17
Credit UnionsCredit Unions
Credit Union National Association (CUNA) Largest credit union trade association in
U.S. Provides bulk purchases of supplies Provides automated payment services Provides credit card programs Provides various investment options to
member credit unions
Slide 18
Credit UnionsCredit Unions National Credit Union Association
(NCUA) Federal regulatory agency Charter and regulate federally chartered
credit unions and state member institutions National Credit Union Share Insurance
Fund (NCUSIF) Federal agency Insure deposits of federally chartered credit
unions and state member institutions
Slide 19
Credit UnionsCredit Unions
U.S. Central Credit Union Central bank for credit unions
Central Liquidity Facility (CLF) Lender of last resort for credit unions
experiencing temporary liquidity problems
Slide 20
Credit UnionsCredit Unions Share Accounts
Credit union members’ small time savings accounts
Highly liquid credit union deposits that can be withdrawn on demand, but not by writing a check
Share Draft Accounts Interest bearing checking accounts of
credit unions Share Certificates
Credit union equivalent of a CD
Slide 21
Credit Union Management of RiskCredit Union Management of Risk
Deal with credit, interest rate and liquidity risks: Default risk
Collateral is held Mortgage insurance is required Expert credit analysis is utilized
Interest rate risk managed by: Adjustable rate mortgages Use of secondary mortgage market
Liquidity risk or illiquid financial position Dealt with by accessing funds through the Central Liquidity Facility (CLF)