Question

Prompt: A thrift is by definition a depository institution that specializes in mortgage lending. The thrift industry consists of savings banks and savings and loan associations. Credit unions are nonprofit entities composed of members with common affiliation among the members. There is a significant difference in the types of ownership of savings institutions. Discuss the two types of thrift ownership and the ownership of credit unions.

Requirements: 250 words minimum

Answer 1

In the United States, there are three main types of depository institutions: commercial banks, thrifts (including savings and loan associations and savings banks) and credit unions. Most functional and philosophical differences have been blurred by financial deregulation, but they still vary in expertise and emphasis, as well as in their legislative and supervisory structures. Commercial banks are the world's financial services department stores. Thrift institutions and credit unions are more like specialty stores that have extended their company lines over time in order to compete better for market share.

While credit unions are sometimes considered thrift institutions, there is one important distinction: depository insurance. Thrifts and commercial banks are covered by FDIC, credit unions are covered by NCUA, though both are covered to the same limit per financial institution.

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 more in dividends than traditional financial institutions and have access to reduced price resources from organisations such as Federal Home Loan Banks. Thrift institutions are more focused on the community than other types of financial institutions and tend to be more focused on consumers than companies. By legislation, thrifts must be bound up with 65% of their loan portfolio in consumer loans. Since financial services have become increasingly deregulated, however, thrift institutions have been able to provide companies with more services.

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.

Thrifts can be owned by their shareholders (stock ownership) or by their depositors and borrowers (mutual ownership). They can either be federally or state-chartered institutions.

While there are some differences between savings banks and savings and loan associations in terms of how they are set up, Congress has removed all differences between the federally chartered facilities as to the kinds of loans and investments they can make.

The Office of the Comptroller of the Currency is the primary regulator of federally-chartered thrift institutions, while the FDIC regulates state-chartered thrifts.

Credit unions are cooperative financial institutions that are not for profit. They have traditionally been created by individuals with a common bond— they operate in the same sector or are members of a specific labor union, share the same religion, etc. Today, membership constraints have considerably eased. In order to become a member, many credit unions simply require you to live or work in a certain geographic area.

In the United States, the vast majority of credit unions are federally or state-chartered institutions insured by the National Credit Union Administration, or NCUA.

Compared to banks and thrifts, credit unions may offer a higher yield on deposit products like CDs. And they may offer loans at lower rates. Credit unions are exempt from federal taxation.