Banks, Thrifts, and Credit Unions

THE United States banking system consists of three types of institutions: Banks. These institutions perform services similar to banks in other countries. Using the original capital from stockholders, retained profits, and money on deposit in savings and checking accounts, they make a wide variety of business and consumer loans.

Until the 1970s, both federal and state laws tended to keep most banks small. Many were local institutions with just a few branches. This has been changing. Many local banks have merged with or bought other banks, often in other states, to form large bank holding companies. Most banks are members of the Federal Deposit Insurance Corporation (FDIC), which insures their deposits up to $100,000.

Thrifts. Known as mutual savings banks or savings and loan associations, these institutions use their depositors' money primarily to make home-mortgage loans. Most thrifts are relatively small institutions within one state.

In the 1970s and '80s, federal regulations governing thrifts were loosened to allow them to offer interest-earning checking accounts and to engage in more commercial real-estate lending. Several thrifts in the Southwestern US collapsed in the late 1980s and were taken over by the Federal Savings and Loan Insurance Corporation (FSLIC), which also insured deposits up to $100,000. Congress abolished the FSLIC in 1989 and transferred insurance authority over thrifts to the FDIC.

Credit unions. A credit union is a cooperative of depositors. Until the 1970s, they offered only savings accounts and consumer loans. Now, however, they may make limited home-mortgage loans and offer a type of interest-earning checking account. They are smaller than thrifts and never cross state boundaries. Deposits in most credit unions are federally insured up to $100,000 by the National Credit Union Administration.

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