A savings and loan association is a type of financial institution that was originally created in 1831 to accept savings from private investors and to provide home mortgage services for the public. In 1932, the Federal Home Loan Bank System was created to oversee the savings and loan associations, with deposits to be insured by the Federal Savings and Loan Insurance Corporation (FSLIC). Since 1933 the federal government has chartered savings and loan associations, although they have not generally been required to be federally chartered.
The deregulatory measures enacted by the federal government in the 1980's allowed savings and loan associations to enter the business of commercial lending, trust services, and non mortgage consumer lending. Also enacted in the 1980's, the Depository Institutions Act gave savings and loan institutions the right to make secured and unsecured loans to a wide range of markets, permitted developers to own savings and loan associations, and allowed owners of these institutions to lend to themselves. Other federal laws were passed that allowed savings and loan associations to print their own capital, and use “goodwill,” so that customer loyalty and market share were counted as part of a capital base and avoid being declared insolvent.
Because of large-scale speculation, financial failure of the institutions became rampant, with well over 500 forced to close during the 1980s. In 1989, after the FSLIC itself became insolvent, the Federal Deposit Insurance Corporation took over the FSLIC's insurance obligations, and the Resolution Trust Corporation was created to buy and sell defaulted savings and loan associations. The Office of Thrift Supervision was also created, in an attempt to identify struggling savings and loan organizations before it was too late.
The following is an example of a state law regulating savings and loans:
