1. Copyright © 2012 Pearson Prentice Hall. All rights reserved. WEB CHAPTER 25 Saving Associations and Credit Unions

2. © 2012 Pearson Prentice Hall. All rights reserved. 25-1 The Savings and Loan Industry Today  Despite the problems of the 1980s, the S&L industry did survive.  The next two slides show the totals assets and the number of S&Ls in the U.S.

3. © 2012 Pearson Prentice Hall. All rights reserved. 25-2 The Savings and Loan Industry Today

4. © 2012 Pearson Prentice Hall. All rights reserved. 25-3 The Savings and Loan Industry Today

5. © 2012 Pearson Prentice Hall. All rights reserved. 25-4 The Savings and Loan Industry Today  Consistent with the last slides, as the number of S&Ls has fallen, the average assets held by the average S&L has increased throughout the last twenty years (except during the 2007-2009 Financial Crisis).  The next slide shows this graphically.

6. © 2012 Pearson Prentice Hall. All rights reserved. 25-5 The Savings and Loan Industry Today

7. © 2012 Pearson Prentice Hall. All rights reserved. 25-6 The Savings and Loan Industry Today  The next three slides show the following: ─Consolidated balance sheet for the S&L industry ─The net income for S&Ls from 1984-2009 ─Average ROE for S&Ls from 1993-2009  Many economists believe that S&Ls will disappear based on these findings. However, this does not appear to be a rapid trend. We may again see deregulation before all is said and done.

8. © 2012 Pearson Prentice Hall. All rights reserved. 25-7 The Savings and Loan Industry Today

9. 25-8 © 2012 Pearson Prentice Hall. All rights reserved.

10. 25-9 The Savings and Loan Industry Today

11. © 2012 Pearson Prentice Hall. All rights reserved. 25-10 Credit Unions  Idea developed in Germany where a group pooled assets to use a collateral for a loan  The loan proceeds were then loaned to members of the group.  Default was rare since all the group members knew each other.

12. © 2012 Pearson Prentice Hall. All rights reserved. 25-11 Credit Unions: Types of Organization  Mutual Ownership ─Owned by depositors  Common Bond Membership ─Defined field of membership  Nonprofit, Tax-Exempt Status ─Lower service fee  Regulation and Insurance  Central Credit Unions ─Help with members’ credit needs ─Invest excess funds ─Hold clearing balances ─Provide educational services  Credit Union Size  Trade Associations National Credit Union Administration http://www.ncua.gov

13. © 2012 Pearson Prentice Hall. All rights reserved. 25-12 Credit Unions

14. © 2012 Pearson Prentice Hall. All rights reserved. 25-13 Credit Unions

15. © 2012 Pearson Prentice Hall. All rights reserved. 25-14 Credit Unions: Types of Accounts  Regular Share Accounts ─Savings accounts ─Receive no interest ─Do receive dividends  Share Certificates ─Compatible to CDs  Share Draft Accounts ─Pay interest ─Write drafts against account

16. © 2012 Pearson Prentice Hall. All rights reserved. 25-15 Credit Unions: Share Distribution

17. © 2012 Pearson Prentice Hall. All rights reserved. 25-16 Credit Unions: Type of Loans

18. © 2012 Pearson Prentice Hall. All rights reserved. 25-17 Credit Unions: Advantages and Disadvantages  Advantages ─Employer support ─Tax advantage ─Strong trade associations  Disadvantages ─Common bond requirement

19. © 2012 Pearson Prentice Hall. All rights reserved. 25-18 Credit Unions: Memberships

20. Credit Union Assets 25-19 © 2012 Pearson Prentice Hall. All rights reserved.

21. 25-20 Chapter Summary  Mutual Savings Banks: the role of this form of thrift institution represents the first style of saving organization was reviewed  Savings and Loan Associations: since the Federal Home Loan Bank Act of 1932, this form of savings institution was very successful until the late 1980s

22. © 2012 Pearson Prentice Hall. All rights reserved. 25-21 Chapter Summary (cont.)  Savings and Loans in Trouble: The Thrift Crisis: the reasons behind the crisis, including interest rate volatility, arcane regulations, and increased risk-taking were discussed  Political Economy of the Savings and Loan Crisis: adding the problem, moral hazard on the part of regulators and politicians added to this costly failure of the S&L industry

23. © 2012 Pearson Prentice Hall. All rights reserved. 25-22 Chapter Summary (cont.)  Savings and Loan Bailout: Financial Institution Reform, Recovery, and Enforcement Act of 1989: this sweeping reform called for significant changes in the oversight and insurance of the S&L industry  The Savings and Loans Industry Today: empirical evidence shows that this industry is shrinking in some respects, possibly suggesting its eventual demise

24. © 2012 Pearson Prentice Hall. All rights reserved. 25-23 Chapter Summary (cont.)  Credit Unions: the history, form, and role of credit unions was reviewed