Thrift Industry Problems and Prospects
New challenges to continuation of their rapid growth have been encountered this year by the country's mutual thrift institutions, which since World War II have risen to a position of dominance in the field of home financing. In recent months, commercial banks have been raising the interest rates they pay on savings deposits, thereby exerting strong competitive pressures on the savings and loan associations and mutual savings banks which together comprise what has become known as the mutual thrift industry. Congress is moving at the same time toward adoption of legislation that for the first time will subject thrift institutions to meaningful federal taxation. Meanwhile, disclosures of fraud and mismanagement in the operation of some savings and loan associations in Maryland have damaged public confidence in the thrift industry in that state, and perhaps elsewhere.
In the wake of the Maryland scandals, which so far have resulted in closure of 12 savings and loan associations with $23 million of shareholder accounts, other states are examining the adequacy of their laws for regulation of thrift institutions. The tendency in financial circles is to take a fresh look at the problems and prospects of a thrift industry that in large measure is setting the pace for housing construction and thus is playing an important part in the country's economic growth.
The special role of thrift institutions in the complex financial structure of the United States often is misunderstood. Unlike commercial banks, these institutions depend almost entirely on the savings of individuals for the funds they lend and invest. While commercial banks pay “interest” on savings, thrift institutions typically pay “dividends” on savings deposits or share accounts.