Savings and loan associations are credit unions created for housing finance. Their resources consist mainly of contributions from shareholders representing the general population. In the U.S., for example, any member of the association may obtain a vote for every $ 100 of his account in the election of the governing body of the association.
Although savings and loan associations emerged about 150 years ago, they got a real development after World War II. Basis of their activities is to provide mortgage loans for housing construction in urban and rural areas. Active operations consist primarily of mortgage loans and loans that are 90%, as well as investments in government securities (central government and local authorities).
In recent years, savings and loan associations represent serious competition for commercial and savings banks in the fight to attract savings. This is achieved by establishing a high percentage, as well as a result of the desire of the population using these institutions to solve the housing problem. Currently, the number of shareholders associations is several tens of millions.
Savings and loan associations are largely cooperative nature, since they are based mainly on the contributions of the shareholders. Under this name, these institutions operate in the U.S. and Canada. In Britain and some Commonwealth countries they are called building societies. In Western Europe and Japan are as similar institutions on a cooperative basis, and with the participation of the state.
Savings and loan associations, building societies are serious competitors to banks, insurance companies in the provision of mortgage loans. It should be noted that in general, savings and loan associations dominate the mortgage market for housing. As a rule, their services in Western countries have resorted mainly middle classes.
Aggravation of the market liquidity problems in the late 70’s – early 80-ies. in the U.S. savings and loan dramatically worsened the situation associations. So, in the mid 80s. there, there were 3,400 associations, and to the present time, half of them were forced to undergo a process of mergers, acquisitions and bankruptcies. Furthermore, in order to survive, they went on a wide shareholding, abandoning the former mutual form of ownership (mutual form of ownership), which for many years was a cooperative form of belonging to its depositors (depositories). In the transition to the form of shareholder-owners investors had the opportunity to buy shares on favorable terms. These changes, as well as diversification of operations caused a fundamental change in the structure of active and passive operations, savings and loan associations, as evidenced by their balance.
As the data in the table, in the passive operations associations a new article. First of all, the place of cooperative units firmly established equity, which was based largely on equity. Association began to accept savings and time deposits (last done in small amounts), which brought them to the passive operation passive operations of commercial and savings banks. The structure of active operations as a share of mortgage loans decreased from approximately 90% of assets to 45.9%. This increased investment in non-state private securities and other assets increased.
At the same time, the liquidity problem for associations is becoming more acute, since, like the banks, they are less liquid assets than liabilities. As a rule, they occupy for a short time, and lend, on the contrary, for long. This was considered the absolute norm in the United States. Therefore, in order to stimulate housing central bank (Fed) in 1980 to give them a benefit in the form of charging interest rates by 0.25% more than the commercial banks. For a long time it was enough to ensure that the association could present cash flow for yourself. However, fluctuations in market interest rates upward forced shareholders and investors to sell their shares for cash and invest in other areas, such as in money market mutual funds, which caused a massive outflow of funds from the association. This devastatingly impacted unions, mortgage market, which eventually led to a decline in housing construction and overall U.S. economy.
Policies of deregulation in the early 80s. associations allowed to compete more effectively in the market to raise funds, but their portfolio has been burdened by mortgages another 50-60-ies. and a low percentage of the ’70s as a result of the associations had to pay liabilities of more than getting on assets, which caused major losses and undermine liquidity. From 1980-1987,. 30% of the total number of associations or bankrupt or subjected to forced mergers.
Under these conditions, the association had to resort to a new market strategy, trying to come on operations to commercial banks through diversification. They began to practice the issuance of commercial and consumer loans, debts to issue securities and sell them on the secondary market, and savings accounts translate into time.