1. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-1 Chapter Twelve Thrift Institutions

2. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-2 Overview: Three Categories on Thrift Institutions Savings Associations (1,176 in 2001) –concentrated primarily on residential mortgages Savings Banks (357 in 2001) –large concentration of residential mortgages –commercial loans –corporate bonds –corporate stock Credit Unions (9,984 in 2001) –consumer loans funded with member deposits Savings Associations (1,176 in 2001) –concentrated primarily on residential mortgages Savings Banks (357 in 2001) –large concentration of residential mortgages –commercial loans –corporate bonds –corporate stock Credit Unions (9,984 in 2001) –consumer loans funded with member deposits

3. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-3 Savings Associations Historically referred to as savings and loan (S&L) associations Net interest margin - interest income minus interest expense divided by earning assets Disintermediation - withdrawal of deposits from depository institutions to be reinvested elsewhere, e.g., money market mutual funds Regulation Q ceiling - an interest ceiling imposed on small savings and time deposits at banks and thrifts until 1986 (continued) Historically referred to as savings and loan (S&L) associations Net interest margin - interest income minus interest expense divided by earning assets Disintermediation - withdrawal of deposits from depository institutions to be reinvested elsewhere, e.g., money market mutual funds Regulation Q ceiling - an interest ceiling imposed on small savings and time deposits at banks and thrifts until 1986 (continued)

4. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-4 Regulator forbearance - a policy of the FSLIC not to close economically insolvent FIs, allowing them to continue in operation Savings institutions - savings association and savings banks combined Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 - abolished the FSLIC and created a new savings association insurance fund (SAIF) under the management of the FDIC QTL test- qualified thrift lender test that sets a floor on the mortgage-related assets that thrifts can hold Mutual organization - an institution in which the liability holders are also the owners Regulator forbearance - a policy of the FSLIC not to close economically insolvent FIs, allowing them to continue in operation Savings institutions - savings association and savings banks combined Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 - abolished the FSLIC and created a new savings association insurance fund (SAIF) under the management of the FDIC QTL test- qualified thrift lender test that sets a floor on the mortgage-related assets that thrifts can hold Mutual organization - an institution in which the liability holders are also the owners

5. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-5 Balance Sheets of Savings Associations (percentage of total assets and liabilities) Item 1977 1982 Liabilities Fixed ceiling liabilities 87.3% 22.0% Market ceiling small time deposits 0.0 52.8 Discretionary liabilities 8.6 23.2 Other liabilities 4.0 2.0 Assets Mortgage assets 86.0 81.1 Fixed rate 86.0 74.9 Adjustable rate 0.0 6.2 Nonmortgage loans 2.3 2.6 Cash and investments 9.2 11.2 Other assets 2.5 5.1 Item 1977 1982 Liabilities Fixed ceiling liabilities 87.3% 22.0% Market ceiling small time deposits 0.0 52.8 Discretionary liabilities 8.6 23.2 Other liabilities 4.0 2.0 Assets Mortgage assets 86.0 81.1 Fixed rate 86.0 74.9 Adjustable rate 0.0 6.2 Nonmortgage loans 2.3 2.6 Cash and investments 9.2 11.2 Other assets 2.5 5.1

6. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-6 Real Estate Assets of Savings Associations and Savings Banks

7. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-7 Savings Banks Established as mutual organizations and largely confined to the East Coast and New England states Deposits are insured by the FDIC under the Bank Insurance Fund (BIF) Have been allowed greater freedom to diversify into corporate bonds and stocks Rely more on deposits than savings associations and have fewer borrowed funds Established as mutual organizations and largely confined to the East Coast and New England states Deposits are insured by the FDIC under the Bank Insurance Fund (BIF) Have been allowed greater freedom to diversify into corporate bonds and stocks Rely more on deposits than savings associations and have fewer borrowed funds

8. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-8 Regulators of Savings Institutions Office of Thrift Supervision - established in 1989 under the FIRREA, charters and examines all federal savings institutions and supervises the holding companies of savings institutions The FDIC - oversees, manages SAIF and BIF SAIF - provides insurance coverage for savings associations BIF - provides insurance coverage for savings banks Other regulators - state-chartered savings institutions are regulated by state agencies Office of Thrift Supervision - established in 1989 under the FIRREA, charters and examines all federal savings institutions and supervises the holding companies of savings institutions The FDIC - oversees, manages SAIF and BIF SAIF - provides insurance coverage for savings associations BIF - provides insurance coverage for savings banks Other regulators - state-chartered savings institutions are regulated by state agencies

9. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-9 Credit Unions Are not-for-profit depository institutions mutually organized and owned by their members (depositors) CU member deposits (shares) used to provide loans to other members with earnings from these loans used to pay interest on member deposits Tend to hold higher levels of equity than other depository institutions Can be federally chartered and regulated by NCUA or state chartered and regulated by the state Growth is not the primary goal Are not-for-profit depository institutions mutually organized and owned by their members (depositors) CU member deposits (shares) used to provide loans to other members with earnings from these loans used to pay interest on member deposits Tend to hold higher levels of equity than other depository institutions Can be federally chartered and regulated by NCUA or state chartered and regulated by the state Growth is not the primary goal

10. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-10 Composition of Credit Union Loan Portfolio, 2001

11. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-11 Composition of Credit Union Investment Portfolio, 2001

12. Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 12-12 Composition of Credit Union Deposits, 2001