What Is the Difference Between a Commercial Bank and a Savings & Loan Bank? (2024)
By: Gail Cohen
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3. Mutual Savings Bank Disadvantages
In the United States, commercial banks and “thrifts”-- savings banks or savings and loan associations—co-exist side by side. Over time, the lines have blurred dramatically. Bottom line: Savings and loans were instituted primarily to underwrite home loans and offer consumers a place to save. The purpose of commercial banks, according to Connecticut’s Department of Banking, is to act as “the traditional 'department store’ of the financial services world,” offering a smorgasbord of products to meet the needs of businesses and families.
Different Histories
Savings and loans were founded to underwrite mortgage loans and provide consumer savings accounts. Scandal threatened the industry in the 1980s and 1990s, when 747 thrifts failed as a result of mismanagement. Banks were set up as businesses devoted to serving the needs of commerce, to extend consumer and commercial credit and to administer a broader range of financial services and products. Before contemporary times, nobody would have thought to go to a commercial bank for a home loan.
The federal government or a state government can issue a commercial bank charter. It’s up to the bank’s stockholders to decide which one is most appropriate for its needs and growth plans. National banks receive charters from the Office of the Comptroller of the Currency, a division of the U.S. Treasury. If a commercial bank decides to trade a state charter for a federal one, it’s perfectly acceptable. Savings and loan charters also can originate at the national or state level. Either the federal Office of Thrift Supervision or a state government’s financial regulatory division issues S&L charters.
Ownership Differences
Two ownership options are available to entrepreneurs seeking to launch a chartered savings and loan association: A consortium of shareholders controlling stock issued by the S&L’s charter can establish a thrift, or the owners of the new institution can be its depositors and borrowers. This type of ownership model is referred to as a mutual ownership. Banks, on the other hand, are national, regional or community for-profit businesses owned and managed by a board of directors picked by stockholders. Thus depositors and borrowers can’t own a commercial bank.
Differences by the Numbers
“By law, thrifts may lend up to 20 percent of their assets to commercial loans, and only half of that can be used on small-business loans,” Bargaineering.com’s Jim Wang wrote in explaining the subtle differences between banks and S&Ls. To obtain Federal Home Loan Bank borrowing approvals, an S&L must meet a "qualified thrift lender test" and prove that 65 percent of its assets are invested in mortgages and consumer-related assets. Commercial banks have no such restrictions. According to the U.S. League of Savings Institutions, “The core expertise of savings institutions is home loans, while the core activity of commercial banks is business and commercial loans.”
Differences Converge
Congress began to knock down the barriers separating commercial banks from savings and loans in 1989. “Since then, much of the S&L industry has been absorbed into the broader banking industry,” wrote economics expert Bert Ely. According to his research, statutory and regulatory changes have nearly eliminated differences between the two. Further, both now operate under the same regulatory bodies. Some of the nation’s largest thrifts are even owned by commercial bank holding companies. Ely believes that S&Ls will disappear eventually: “Whether or not S&Ls do disappear is no longer a public-policy concern because they now are so similar to banks.” Said David Hochstetler of West Palm Beach’s Fidelity Federal Savings Bank’s: “We’re in the commercial banking field now.”
Based in Chicago, Gail Cohen has been a professional writer for more than 30 years. She has authored and co-authored 14 books and penned hundreds of articles in consumer and trade publications, including the Illinois-based "Daily Herald" newspaper. Her newest book, "The Christmas Quilt," was published in December 2011.
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Banks are community, regional or national for-profit business corporations owned by private investors and governed by a board of directors chosen by the stockholders. Savings institutions (also called savings & loans or savings banks) specialize in real estate financing.
A commercial bank may offer you or your business a savings and checking account, a mortgage, business and student loans and even investment advice. A savings and loan institution specializes in mortgage and home loans and may provide the same kinds of checking and savings accounts as a bank.
Commercial banks are classified as: retail banks and wholesale banks. Commercial banks are intermediaries between the central bank (FED) and the ultimate money borrowers. However, savings banks are financial institution whose primary purpose consists of accepting savings deposits and paying interest on those deposits.
The term federal savings and loan (S&L) refers to a financial institution that focuses on providing checking and savings accounts, loans, and residential mortgages to consumers. These institutions are also referred to as thrifts—credit unions and savings banks that are mutually owned by their customers.
Central bank can be called the apex bank, which is responsible for formulating the monetary policy of an economy. Commercial banks, on the other hand, are those banks that help in the flow of money in an economy by providing deposit and credit facilities.
Commercial banks offer all types of financial services to their customers, they are full service financial institution. Savings and loan associations offer loans to individuals and don't have all the same services that are offered by commercial banks.
A commercial bank is a financial institution that provides services like loans, certificates of deposits, savings bank accounts bank overdrafts, etc. to its customers. These institutions make money by lending loans to individuals and earning interest on loans.
A commercial bank is an easy and flexible source of accepting and withdrawing money. These are the economical source of funds as it manages deposits and withdrawals at a low cost and involves no hidden cost. It generally provides the loan against some security.
Commercial banks are a critical component of the U.S. economy by providing vital capital to businesses and individuals in the form of credit and loans. They provide a secure place where people save money, earn interest, and make payments through checks, debit cards, and credit cards.
savings bank, financial institution that gathers savings, paying interest or dividends to savers. It channels the savings of individuals who wish to consume less than their incomes to borrowers who wish to spend more.
A savings bank is a financial institution that is not run on a profit-maximizing basis, and whose original or primary purpose is collecting deposits on savings accounts that are invested on a low-risk basis and receive interest. Savings banks have mostly existed as a separate category in Europe.
A commercial bank is a kind of financial institution that carries all the operations related to deposit and withdrawal of money for the general public, providing loans for investment, and other such activities. These banks are profit-making institutions and do business only to make a profit.
Commercial banks are generally stock corporations whose principal obligation is to make a profit for their shareholders. Basically, banks receive deposits, and hold them in a variety of different accounts; extend credit through loans and other instruments: and facilitate the movement of funds.
Savings and loan associations — also known as savings banks, thrifts and thrift institutions — are financial institutions typically owned by their customers or shareholders. Savings and loan associations were established in the 1930s to provide more affordable mortgages to consumers.
D)Both are for-profit financial institutions that accept deposits, provide checking accounts, and make loans to their customers, but savings and loan associations primarily serve individuals, not businesses.
Retail banks have multiple locations and a variety of banking services.Credit unions, however, have fewer fees and higher interest rates on your money, but often require membership. With online banks, everything happens digitally (deposits, transfers, bill payments, and savings).
The difference between commercial banking vs. investment banking is that investment banks typically raise money by selling securities (like stocks and bonds). On the other hand, commercial banks use consumer deposits to fund loans and mortgages, and the interest on those loans becomes profit for the bank.
Introduction: My name is Frankie Dare, I am a funny, beautiful, proud, fair, pleasant, cheerful, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
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