Topic 6: Thrifts & Finance Companies Flashcards
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
Thrifts
Formerly called as mutual savings bank or mutual savings association
Savings Banks
Why are savings banks mutual?
It’s because they are owned and controlled by the depositors
What is the core function of savings banks?
To promote savings among society’s poor
When was the first savings bank formed?
Hamburg, Germany in 1778
What did the first savings bank issued?
Annuities instead of offering deposit
What do some people believed the first savings bank was made?
1799 in Southeast England by Reverend Joseph Smith
What did Smith offered from his savings bank?
He offered a proposal to take deposits from his parishioners during summer and return the deposits plus one-third at Christmas
Which government authorized the creation of a savings bank? When was it?
Massachusetts Government in 1816
What is the promised rate of the banks to pay to the depositors?
1% return quarterly
What is the raised of the promised rate?
1.25% quarterly or 5% annually
Similar functions to savings bank but primarily focused on home financing
Savings and Loans Association
What association is where a group of people in the 19th century would pool their money for the purpose of building homes? Then the chosen family would repay the loan for 30 years for cost and interest?
Building and Loans Association
Designed to increase the amount of low-cost funds available to financial institutions for home mortgage loans, small business loans, agricultural loans and rural economic development loans
Federal Home Loan Banking System (1932)
What rule do thrifts follow?
3-6-3 rule (3% on deposits, lend money at 6%, and hit the golf course by 3pm)
The postwar crisis subjected commercial banks to ___________, which prohibits them to pay interest in demand deposits.
Regulation Q
Why do thrifts pay higher interest rates often?
Because there were no explicit regulations on interest rates and dividends
Why are thrifts viewed as special?
Because these institutions enhanced the availability of credit for housing” and thus “they should be given an advantage in the competition from consumer-type savings”
In 1962, how many basis points did commercial banks raise?
50 basis points
In 1962, how many basis points did savings and loans raise?
15 basis points
When and why did thrifts lose their special standing?
In 1966, thrifts lost their special standing because they were included in Regulation Q
Is a savings bank in Massachusetts, spearheaded by Honorable James Savage, with a goal of increasing savings among the poor and working class
Provident Institution for Savings
- Phased out Regulation Q
- Allowed credit unions and thrifts to offer NOW accounts (Negotiable Orders of Withdrawal)
- Allowed thrifts to compete for deposits with money market mutual funds and more
Depository Institution Deregulation and Monetary Control Act of 1980 (DIDMCA)
In DIDMCA, thrifts could pay _____________________
market rates of interest
In DIDMCA, the main source of revenue was the _______ mortgages with fixed interest
30-year
Is named after its two main sponsors: Congressman Fernanrd St. Germain and Senator Jake Garn
Garn-St. Germain Depository Institution Act of 1982
Allowed Savings & Loans to make commercial, corporate, business,
or agricultural loans up to 10% of the institution’s assets after January 1, 1984
Garn-St. Germain Depository Institution Act of 1982
In the Garn-St. Germain Depository Institution Act, how much rate is now allowed for Savings and Loans?
from 20% to 30%