Background
Thrifts, also known as savings and loan associations, are United States non-banking financial institutions primarily engaged in collecting savings from the public and offering mortgage financing. They share similarities with building societies in the United Kingdom.
Historical Context
Thrifts became particularly significant in the post-World War II era, facilitating home ownership by providing affordable mortgage solutions. However, the sector experienced substantial turmoil during the 1980s Savings and Loan Crisis, resulting in numerous financial failures and substantial government intervention.
Definitions and Concepts
A thrift is a financial institution focused on taking deposits and making home loans. Unlike commercial banks, thrifts are designed to encourage savings and home ownership. The term thrift is often used interchangeably with “savings and loan association.”
Major Analytical Frameworks
Classical Economics
Classical economists typically emphasize the role of thrifts in maintaining a balance between savings and investment within an economy.
Neoclassical Economics
Neoclassical theories often stress the efficiencies created within the thrift industry, underlying their significance in providing liquidity through mortgage lending.
Keynesian Economics
Keynesian analysis might focus on the importance of thrifts in stimulating aggregate demand, particularly in the housing sector.
Marxian Economics
From a Marxian perspective, thrifts can be examined in the context of capital accumulation and the role of financial sectors in perpetuating societal inequalities.
Institutional Economics
Institutional economists would examine the regulations and institutional frameworks governing thrifts, including the changes leading up to and following the Savings and Loan Crisis of the 1980s.
Behavioral Economics
Behavioral perspectives might analyze the decision-making processes of thrift depositors and borrowers, including perceived trust and risk.
Post-Keynesian Economics
The sector’s contributory role to financial stability and the impacts of government intervention during periods of crisis might be a focal point in Post-Keynesian analysis.
Austrian Economics
Austrian economists might critique the regulatory environment of thrifts and emphasize the importance of free-market solutions even within this segment.
Development Economics
Thrifts’ role in funding home ownership and thereby enabling economic progression in less-developed communities could be focal points in development economics.
Monetarism
Monetarists would consider the implication of thrift activities on money supply and how such institutions might affect monetary policy through their savings and lending practices.
Comparative Analysis
Thrifts versus Commercial Banks:
- Thrifts primarily focus on residential mortgages.
- Thrifts have historically had more restrictive charters compared to commercial banks. Thifts versus Credit Unions:
- Both are member-focused, but thrifts function more like profit-driven entities compared to the cooperative nature of credit unions.
Case Studies
- The Collapse of Lincoln Savings and Loan Association: Examining high-profile failure amidst the 1980s crisis.
- The Impact of Deregulation: Assessing legislative changes on thrift operations and financial health.
Suggested Books for Further Studies
- “A History of the United States Savings and Loan Industry” by Brian W. Paulk
- “The Great Savings and Loan Crisis: Lessons Learned from a Regulatory Failure” by Kevin Dowd
- “Panic on Wall Street: A History of America’s Financial Disasters” by Robert Sobel
Related Terms with Definitions
- Savings and Loan Association: Interchangeable term with thrift, denoting U.S. financial institutions focusing on savings deposits and mortgage loans.
- Building Society: The UK equivalent of a thrift, primarily engaged in mortgage lending and savings collection.
- Savings and Loan Crisis: A financial disaster that occurred in the 1980s when numerous thrifts faced insolvency, leading to substantial losses and government rescues.
