SIC 6035 Savings Institutions, Federally Chartered

Encyclopedia of American Industries

SIC 6035
SAVINGS INSTITUTIONS, FEDERALLY CHARTERED

This category includes savings and loan associations operating under federal charter and savings banks operating under federal charter. Both savings and loan associations and savings banks fall under the general term "thrifts." Thrifts are financial institutions that exist primarily to hold retail deposits and make residential mortgage loans. About half of all residential mortgage debt, or dollars lent to individuals for the purpose of buying a home, is held by thrifts, though this market share has declined with the rise of mortgage bankers and the shrinking of the thrift industry. The thrift industry is the second largest type of financial institution, after commercial banks. This article deals only with federally chartered institutions; SIC 6036: Savings Institutions, Not Federally Chartered discusses state chartered institutions.

NAICS Code(s)

522120 (Savings Institutions)

Industry Snapshot

As of December 31, 2001, there were roughly 1,500 thrift institutions in the United States, nearly 1,000 fewer than in the early 1990s. These thrifts held roughly $1.3 trillion in assets (compared to about $6.9 trillion held by commercial banks) and employed about 255,000 people. Of the 1,019 thrifts regulated in 2001 by the Office of Thrift Supervision, 882 were federally chartered, and 137 were state chartered. This falling number of thrift institutions was the result of regulatory changes that allowed some thrifts to become commercial banks. It also reflected the late-1990s flurry of mergers and acquisitions, a phenomenon that altered the nation's entire financial services world. The majority of the nation's thrifts were insured by the Savings Association Insurance Fund (SAIF). The small percentage of thrifts not insured by the SAIF was insured by the Bank Insurance Fund (BIF).

Of the industry's total $1.299 trillion in assets on December 31, 2001, $598 billion, or 46 percent, were in one to four family mortgages. This percentage marked a sharp decline from the 76 percent level for these small mortgages in the early 1990s—another reflection of the growing diversification of the financial services industry. Of thrifts' other assets, some $319 billion were held in securities, while $59 billion were in multifamily residential properties, and $38 billion were in commercial real estate loans. Although the number of institutions continued to shrink, the industry's level of assets, deposits, and other measures exploded in the early 2000s, as falling interest rates boosted both new mortgage and refinancing levels.

Organization and Structure

Some federal savings and loan associations are owned through the issuance of capital stock traded on the stock exchanges, just like any other corporation. Others are mutually owned. Mutually owned savings and loans, or "mutuals," do not issue stock and are owned by the customers of the institution. Any customer who opens an account at a mutual becomes a part owner of the institution. The type of ownership—stock or mutual—and the type of institution—S&L or savings bank—is specified in the thrift's charter.

Federal Home Loan Bank System. The Federal Home Loan Bank (FHLB) System is to thrifts what the Federal Reserve is to banks. It provides liquidity to federally chartered savings and loans, which must join it, and to any state chartered institutions that wish to join. Members are affiliated with 1 of the 12 regional FHLBs from which they may borrow. Such borrowing is not long term; a thrift does not go into debt to a FHLB for any extended period of time, only for a short period, often overnight. To fund such borrowing, FHLBs have credit with the U.S. Treasury and issue government agency debt bonds, much the way that the Federal Reserve sells Treasury bills. The 12 regional FHLBs were managed by the Federal Home Loan Bank Board until that board's abolition in 1989, after which they were managed by the U.S. Department of Treasury.

Regulation: The Office of Thrift Supervision. The many failures in the thrift industry, beginning in the late 1980s, brought the industry under careful scrutiny and regulation. The Office of Thrift Supervision (OTS), an agency within the U.S. Treasury Department, became the chief regulator of the thrift industry with the bailout law of 1989. Since the bailout law, thrifts are tightly regulated, mainly because the deposits of their customers are federally insured. It is to the taxpayer's advantage that thrifts be profitable. The OTS decides if a thrift is healthy and profitable enough to do normal business. The OTS charters, regulates, and examines the operations of federally chartered savings and loans.

The OTS classifies thrifts by capital levels and profitability. There are four such classifications, each of which corresponds to a particular level of capital: Group I thrifts are healthy institutions, fully capitalized, and profitable; Group II consists of those institutions that do not quite meet the capital guidelines for Group I but are expected to; Group III thrifts have poor earnings and low capital; and Group IV consists of those thrifts whose assets will be transferred to the Resolution Trust Corporation. As of November 1992, 37 percent of all assets of the federally chartered thrift industry were held by Group I thrifts. Thirty-five percent of the industry assets were in Group II, 24 percent in Group III, and only 4 percent in Group IV. This meant that 72 percent of all assets in federally chartered thrifts were in institutions that were considered either healthy or expected to meet the healthy capital guidelines. By December 1996, the health of the industry had improved even further. The Federal Deposit Insurance Corporation (FDIC) estimated that there were only 35 problem thrifts at that time, compared to 71 just two years earlier, and 480 at the end of 1990.

For a thrift to be in OTS Group I, it must pass the following tests. First, 1.5 percent of assets must be in tangible capital. Tangible capital is stockholder's equity minus investments in activities that were legal before the bailout law but are no longer legal for thrifts to undertake. This condition existed because the thrift industry was in a period of transition in the early 1990s, with tighter regulations being phased in to minimize losses. Second, 3 percent of assets must be in leverage capital. Leverage capital is tangible capital plus the value, as judged by the OTS, of the firm's goodwill and intangible assets. Goodwill is defined as an asset equal to the market value of another institution a thrift purchases minus the value of its liabilities. The 1989 bailout law calls for goodwill to be phased out as part of the capital that a thrift reports. Third, 7.2 percent of a thrift's risk-weighted assets must be in total capital. Risk-weighted assets are obtained by assigning a weight to each kind of asset. For example, the amount of cash and government securities is multiplied by zero, while the amount of higher-risk assets is multiplied by as much as two times the face value of the asset. Total capital includes leverage capital less items being phased out, such as nonresidential construction loans, plus an allowance for general loan loss.

In addition to these capital guidelines, during at least three-fourths of each year, thrifts must invest 65 percent of assets in certain investments. Among these acceptable investments are residential mortgages, car loans, Fannie Mae loans (Fannie Mae is a private company offering "the nation's largest source of financing for home mortgages"), home equity loans, and investment in the Resolution Trust Corporation. The idea behind this last requirement, known as the Qualified Thrift Lender Test, is that none of these acceptable investments is of the high-risk venture capital or commercial real estate variety that became popular areas for thrift investments during the years after the 1980 deregulation.

If a thrift does not comply with the above guidelines for Group I, it must submit a plan to the OTS, stating how it will meet them and comply within 60 days. If this compliance does not happen, the OTS places restrictions on the thrift, such as limiting the growth in the amount of future loans and further limits on the kinds of loans the thrift may make. The delinquent thrift also may not purchase an interest in any other company.

Other Regulators. The Federal Deposit Insurance Corporation (FDIC) is the provider of deposit insurance for all depository institutions. The FDIC controls the Savings Association Insurance Fund and the Bank Insurance Fund. Therefore, the FDIC has an interest in assuring that thrifts stay profitable so as not to pose a threat to the insurance fund. Whereas the OTS is the chief regulator of thrifts and is concerned with overall operations, with an emphasis on the asset side of the balance sheet, the FDIC regulates deposits at thrifts and conducts investigations to the effect of securing deposits. The FDIC works closely with the Resolution Trust Corporation (RTC) in administering the affairs of failed thrifts. The RTC seizes the assets of Group IV thrifts and attempts to either sell the institutions or liquidate them and pay off depositors with federal insurance money, as provided for in the 1989 bailout law.

The thrift industry is also under the same depository regulations of the Federal Reserve System as all other depository institutions. As of 1993, all depository institutions, including thrifts, had to hold a certain amount of deposits as reserves. As of 2003, the reserve requirement was 3 percent of all savings deposits up to $42.2 million in deposits and then 10 percent of all savings deposits above $42.2 million. The Federal Reserve imposes this "reserve requirement" in order to insure that at least some deposits remain in the vaults of depository institutions as a hedge against bank runs.

Background and Development

Savings and Loans Versus Savings Banks. The nineteenth-century origins of savings and loan associations and savings banks were separate. Savings and loans were first created primarily with the goal of fostering home ownership among members of the association. These "building societies" were originally designed to exist only until all members received a home loan. But inevitably, some societies continued to accept new members and exist in perpetuity. Savings banks, by contrast, were designed to encourage thrift and personal savings and from their origins were intended to be permanent institutions. Yet savings banks also found mortgage lending a sound investment of depositor funds. In this way, savings and loan associations and savings banks came to have similar functions.

The first federal charters for savings and loans were granted in 1933. Savings banks were not federally chartered until 1980. Thus, before 1980 savings and loan associations and savings banks were distinct segments of the thrift industry because all savings banks were state chartered mutuals. Savings and loans focused on residential mortgage lending, which made up more than 75 percent of their assets. Savings banks also were heavily into mortgage lending, but without federal regulation they were able to have much greater shares of assets in other kinds of consumer lending.

Historically, all savings banks were mutually owned and state chartered, thus the name "mutual savings bank." With the Depository Institutions and Monetary Control Act of 1980, mutual savings banks could easily obtain federal charters and change their ownership to stock form. In 1982, with the Garn-St. Germain Act, federal savings banks could convert to federal savings and loans and vice versa. As the thrift industry entered the 1990s, virtually the only difference between savings and loan associations and savings banks was that the FDIC administered insurance funds; the SAIF and the BIF are kept separate to make it easier to have separate insurance premiums for the two segments of the industry.

Postwar Favoritism. After World War II, savings and loans enjoyed less deposit regulation than commercial banks because housing was a national priority. The Federal Reserve's Regulation Q prevented commercial banks from paying more than 3 percent on deposits from 1933 to 1962. As such, savings and loans typically offered onequarter percent higher interest than banks, easily attracting deposits. In 1966, Regulation Q was extended to place a deposit interest ceiling on thrifts as well, but in such a way that thrifts always paid one-quarter to one-half percent higher than commercial banks. The Federal Reserve would periodically make adjustments in the rate ceilings, but the Fed could not cope with the skyrocketing and erratic interest rates of the late 1970s, and an important deregulation law passed in 1980 removed all deposit interest rate ceilings from all depository institutions.

Deregulation. The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) changed the regulatory environment for both banks and thrifts. It deregulated the thrift industry by allowing thrifts to acquire more nonmortgage loans, eliminating interest rate ceilings on both loans and deposits, and eliminating some geographical lending restrictions on thrifts. Prior to this act, federally chartered savings and loans could only make non-mortgage consumer loans if they were for home improvement, mobile homes, education, or if the loans were secured by deposits. DIDMCA allowed savings and loans to make a broad range of consumer loans, just like state chartered savings banks. DIDMCA also allowed savings banks to get federal charters and to convert ownership to stock form, and opened the Federal Reserve's discount window to all depository institutions, both federally and state chartered, banks and thrifts. This act allowed federally chartered savings banks and savings and loans to switch charters from one to the other and gave both segments of the thrift industry power to make commercial loans. Thrifts responded by trying to become more full-service financial institutions, making commercial real estate loans, buying commercial paper, and making direct commercial loans. It was the mismanagement of many individual thrifts trying to become more like commercial banks that led to the rash of thrift failures later in the 1980s.

Crisis and Bailout. From 1986 through the early 1990s, hundreds of thrift institutions became insolvent. A comparison of asset holdings of solvent and insolvent thrifts as of December 31, 1987, showed that insolvent thrifts differed from solvent ones in several aspects of asset structure: lower percentage of residential mortgages (31.3 versus 46.3), higher percentage of commercial real estate (14.5 versus 9.9), higher percentage of repossessed real estate (9.9 versus 1.3), and lower levels of cash and government securities (11.5 versus 13.3). Simply put, many thrifts, when presented with their new lending powers under deregulation, experienced poor judgment and made many bad loans.

The regulators of thrifts made the problem worse. The Federal Home Loan Bank Board (FHLBB) was established in 1932 as the chief regulator of thrifts. The FHLBB oversaw the Federal Savings and Loan Insurance Corporation (FSLIC), which insured thrift deposits up to $100,000 per account. The insurance money for the FSLIC came from premiums paid by member thrifts. But unlike other regulators, the FHLBB was more of an advocate for its members and as such kept the premium very low. So the FSLIC was under funded, and by the end of 1987, so many thrifts had failed that the FSLIC itself became insolvent. Also, throughout the 1980s the FHLBB allowed the FSLIC to practice creative accounting to hide the depth of member problems. The FHLBB was so under the influence of the industry itself that a whole new regulatory environment was needed.

"The Bailout Law." The Financial Institutions Reform, Recovery, and Enforcement (FIRRE) Act of 1989 eliminated the FHLBB, an independent agency, and replaced it with the OTS, which would be under direct control of the U.S. Treasury Department. Meanwhile, FIRRE took the insurance fund out of the hands of regulators and put it under the control of the FDIC, in the form of the Savings Association Insurance Fund. The FDIC was considered more sound and to have stricter examination standards than the insolvent FSLIC. FIRRE also strengthened capital-to-asset ratio requirements and phased out forms of intangible assets from the counted capital levels. The act also established the Resolution Trust Corporation to oversee and administer the sale or liquidation of failed thrifts.

Bad loans continued to haunt the thrift industry in the early 1990s, as nearly 2 percent of loans were delinquent in the first quarter of 1992. Twelve percent of construction and land loans were delinquent at this time, demonstrating why such loans were discouraged in the new regulation following the 1989 bailout law. In accordance with the OTS capital guidelines, and as a result of closing troubled thrifts, the industry-wide level of tangible capital as a percentage of total assets rose through the early 1990s from 3.5 percent in March 1990 to 5.2 percent in March 1992.

Recovery and Profits. Despite the continuance of some bad loans, profits in the thrift industry steadily climbed in the early 1990s. Losses from 1987 to 1990 totaled $30 billion, but by 1992 profits were up to $5.14 billion, one of the industry's best years ever. Profits were aided in the early 1990s by the widest interest rate spreads in decades, that is, a wide gap between the rates charged on loans and paid to depositors. In part, the wide spread at thrifts was a reaction to some of the widest gaps ever between the 30-year Treasury bill and the short-term Treasury bills, or T-bills. Long-term T-bill rates are usually higher than short-term rates, but this gap was exceptionally large through the early 1990s. The gap grew from 2.91 percent in March 1991, to 3.33 percent by December 1992.

Also, the wide spreads at thrifts resulted from the Federal Reserve's easing of interest rates in response to a sluggish economy. Thrift profits tend to be higher when interest rates are low. Mortgages are long-term commitments, while deposits are relatively short-term. Therefore, when interest rates rise, thrifts lose profits, with rates to depositors rising, while revenue from fixed-rate mortgages stays level. The high interest rates of the late 1970s were responsible for thrift failures at that time, encouraging the deregulation in the early 1980s, which ultimately and ironically led to the failures of the late 1980s.

Falling rates, likewise, reduce costs of thrift liabilities to depositors, while mortgage revenues fall more slowly, increasing profits. Lower interest rates in the early and mid-1990s made the industry's recovery during this period much easier.

Profits were also aided by a decline in the amount of troubled assets. The ratio of noncurrent assets plus real estate owned to all assets fell from 3.98 percent at the end of 1990 to 1.1 percent at the end of 1996. Moreover, the number of failed or assisted institutions fell to one during 1996 from 223 in 1990. These healthy declines can be attributed to several factors. First, falling mortgage rates combined with an economy no longer in as deep a recession helped consumers pay their mortgages on time. Second, the real estate market in general was improving in the early 1990s; the major slowdown in home sales experienced in 1989 and 1990 was over. Finally, the strict regulation following the 1989 bailout law found many thrifts writing down their bad assets. Many of these write-downs were in commercial and out-of-state loans, the worst sources of thrift troubles in the late 1980s.

Profits were boosted by higher capital-to-asset ratios as well. The ratio of leverage capital to total assets industry-wide grew from 4.06 percent in March 1990 to 7.77 percent at the end of 1996. Thus strengthened net worth base allowed more thrifts to engage in profitable "equity financing" (funding new loans without taking on any new liabilities in the form of deposits). Equity financing is pure profit, and the amount of equity financing increases with the capital-to-asset ratio.

Types of Loans. There are two kinds of loans that thrifts offer: fixed-rate loans and adjustable-rate mortgages (ARMs). About 30 percent of the thrift industry offers mainly fixed-rate loans, most of which are the traditional 30-year mortgage, though some other time periods are available. About 30 percent of thrifts offer both kinds of loans, and 40 percent of the industry offers mainly ARMs. Many thrifts prefer to offer ARMs because they pose less risk to the institution by not locking into a low rate. ARMs are adjusted either monthly or yearly and may be tied to either the Office of Thrift Supervision's cost-of-funds index for monthly adjustments or to the rate of the one-year Treasury bills for annual adjustments.

The relative preference of consumers for fixed-rate mortgages or ARMs depends, of course, on the prevalent level of interest rates. At low rates, such as in the early 1990s, consumers want to lock in to a low fixed rate, while at high rates, ARMs will be more popular in hopes that rates will fall. Yet the willingness of thrifts to offer one versus the other is the exact opposite; thrifts prefer ARMs when interest rates are low, so that revenues from loans will rise with interest rates. ARMs first became legal for thrifts to use in 1981. Thrifts began to lobby for ARMs in the late 1970s, spurred by the pioneering usage of ARMs in the mid-1970s by some California state chartered institutions.

There are few differences between thrift institutions with respect to what their products look like. The only differences are in the kind of loan or in the interest rates offered for loans or savings and checking accounts. The large number of firms in the industry tends to keep interest rates, both on assets and liabilities, pretty close from one savings institution to another. After all, with so many institutions and so little difference in the kinds of product, thrifts will be very careful to keep their interest rates competitive.

Refinancing. One phenomenon thrifts faced in the early 1990s was refinancing of mortgages. Falling mortgage rates allowed many consumers to lock in to lower fixed rates. The average rate on a 30-year mortgage fell from 10.2 percent in 1990 to 7.5 percent by 1993, a 20-year low. Refinancings lower thrifts' profits in the long term because of the lower fixed rates, but in the short term they contribute to profits, as they did in the early 1990s. Refinancing brings in new business. Refinancing also brings in up-front fees, such as application fees and points.

Charter Flips. The 1982 Garn-St. Germain Act allowed thrifts to change over from savings and loans to savings banks and vice versa. The number of such charter flips, plus changes from a federal to a state charter, went from zero in 1989 to 29 in 1990, 54 in 1991, and 114 in 1992. Some of these institutions were seeking a name change to avoid the stigma of being called a savings and loan. Others were sought to continue pursuing the commercial banking activities discouraged of thrifts under the 1989 bailout law. State chartered thrifts are exempt from OTS rules regarding capital-to-asset ratios and also need not pass the Qualified Thrift Lender Test, which forces federal thrifts to keep 65 percent of assets in housing-related areas. It is not clear that charter flips are always advantageous, as the downside includes loss of access to the Federal Home Loan Bank system, as well as the administrative costs of the flip.

Takeovers by Banks. A residual phenomenon of the thrift bailout in the early 1990s was the great extent to which the commercial banking and thrift industries were merging through the acquisition of thrifts by banks. The FDIC Improvement Act of 1991 made thrift acquisition easier for banks, and banks were enjoying record high stock prices in the early 1990s. Banks tend to have a stronger balance sheet than thrifts, and bankers already have the skills needed to manage a thrift.

During the mid-to late 1990s, many businesses aggressively pursued the financial services market. Such businesses used the federal thrift charter as a loophole to offer virtually unregulated financial services all over the United States. Such services included trust funds, deposit service, loans, and almost everything that a bank could offer, with the exception of corporate banking and bond trading. Under the federal charter, thrifts were able to offer nearly the same services as commercial banks, but with less regulation.

In 1998 OTS approved 43 charters, and more than 33 percent of these were given to companies not in the banking business, such as State Farm Mutual Automobile Insurance Company. In 1999, OTS was faced with applications for charter from more nonbank companies, such as Ford Motor Company and the Farm Bureau. While an OTS director (Ellen S. Seidman) claimed in Business Week (22 March 1999) that the OTS used discretion in granting charters to applicants, industry banking commissioner Catherine A. Ghiglieri of Texas called the trend a "recipe for disaster" and stated that "you have traditional bank products being sold through nontraditional means by people who haven't been in the business before."

Although Congressional reform could make it more difficult for nonbanks to obtain thrift charter status, such reform had been unsuccessfully attempted since the 1970s, according to an article in Business Week (7 December 1998). In 1998, the House Banking Committee Chairman (James A. Leach, R-Iowa) led unsuccessful reform to completely eliminate savings and loans. In 1999, Leach concentrated on initiatives that would slow or block nonbanks from purchasing new thrifts. But the new players in the thrift arena made sure that they did not face the same fate of Savings and Loans in the 1980s. The new thrifts focused on loan origination only, followed by a sale of the loan to investors to reduce the risk of holding bad assets.

Current Conditions

The sluggish economy of the early 2000s boosted the number of troubled loans as a percentage of total assets at thrifts; however, this figure remained at less than 1 percent as of early 2002. In fact, as the economy weakened, and interest rates fell, thrifts saw their return on assets grow. In 2001, return on assets reached 1.07 percent, their highest level since the mid-1950s. The thrift industry saw total net income grow 27 percent to an unprecedented high of $10.2 billion in 2001. According to James E. Gilleran, director of the Office of Thrift Supervision (OTS), in a 2001 OTS press release, this growth was attributable to both "the low interest rate environment and strong earnings from record levels of mortgage refinancing." With one to four family mortgages accounting for nearly half of the industry's assets, the reduced interest rates that fueled both new home mortgages and existing mortgage refinancing also bolstered growth among thrifts.

The faltering economy also worked to help reduce the growing number of unprofitable thrifts. Between 1997 and 2000, the percentage of unprofitable thrifts had grown from 4.1 percent to 8.56 percent; however, in 2001 this figure dropped to 8.22 percent. The assets at problem institutions also fell from $7 billion to $4 billion.

Despite controversy surrounding efforts by nonfinancial companies to secure thrift charters, these firms continued to apply for thrift charters in the late 1990s and early 2000s. Between 1997 and 2001, insurance companies accounted for 53 percent of all nonbank institutions applying for thrift charters. Securities brokers accounted for 18 percent. The total number of new thrift charters peaked in 1998 at 89 and fell to 17 by 2001.

Industry Leaders

In the early 2000s, the thrift industry's largest player, in terms of both assets and revenues, was Washington Mutual, with $275 billion in assets and $17.6 billion in revenues. After acquiring two California thrifts, American Savings Bank and Great Western Bank, Washington Mutual had spent $30 million in 1998 to launch an advertising campaign that portrayed it as a "big bank with a small town feel" and emphasized personal service. The thrift continued to grow in 2001, purchasing another thrift, Dime Bancorp Inc., for $5.1 billion and the specialty lending assets of Homeside Lending Inc. for $1.9 billion.

In a distant second place, Golden West Financial secured revenues of $4.4 billion in 2001 and assets totaled $59 billion. Golden State Bancorp Inc., the third largest industry player, posted 2001 revenues of $4.3 billion and assets of $54 billion. With revenues of $2.8 billion and assets of $37.7 billion, Charter One Financial held the fourth-place position in the early 2000s. In fifth place, Sovereign Bancorp Inc. reported revenues of $2.6 billion and assets of $36.8 billion.

Workforce

The Insurance Information Institute, based in New York City, estimated that 255,800 people were employed in savings institutions in the United States in 2001. According to the Bureau of Labor Statistics (BLS), trends in the industry, such as the advent of interstate banking, would impact the workforce in this industry. The need for tellers, for example, was expected to decline through 2010, but rapid turnover would continue to provide job openings in this position because little education is required, and the pay is relatively low. The BLS suggests that interstate banking would diminish the total number of banks but change the job responsibilities in a new type of financial institution that is larger than its counterpart of the past. BLS predicted that the financial industry would cut costs in order to more effectively offer an expanded network of interstate services. Among changes that impact the workforce were the following: the hiring of part-time rather than full-time tellers and the use of customer service representatives who could also perform teller duties and who were housed in all-service locations, such as bank branches in grocery stores. Such a workforce would need to perform more tasks, so thrifts started to train employees using computerized tutorials on the job, right at the thrift branch itself, rather than send employees to a traditional training center.

America and the World

Most industrial countries have financial institutions to provide mortgages and house personal savings similar to the thrift institutions in the United States. Because the thrift institution is segmented locally, with no institutions owning branches outside the state where headquartered until 1992, most business done by thrifts is local. Since thrifts serve a domestic market, serving the local needs of individual savers and borrowers, thrifts do not have the international business that many commercial banks and brokerage houses have. Thrifts do not have to compete in world markets, as do some commercial financial institutions. The major impact of international finance on thrifts is that of interest rates, because the interest rates that affect thrift profitability are highly influenced by world markets. But thrifts are no different in this respect than any financial institution.

Research and Technology

As thrifts entered the 1990s, technology played an increasing role in how they did business. Thrifts were becoming more sales oriented in the wake of the bailout crisis, moving away from higher-risk ventures and back to consumer-oriented banking; for this reason, customer relations became a prime area for the application of technology. Thrifts used a variety of media to improve their services, both salesperson-activated and customer-activated. Salespeople could use the latest software to access all kinds of information on the thrift's rates and products. As time constraints on consumers increased, thrifts responded by having loan representatives use auto-mated credit scoring, allowing consumer loans to be approved by telephone in minutes.

Thrifts also introduced technology to reduce risks when making loans. Thrifts hoped to use artificial intelligence systems to assist in various decision-making processes, such as loan applications and deciding which financial services to offer.

ATMs, voice/audio response systems, and "smart cards" became widespread during the 1990s. Smart cards accessed accounts like ATMs, contained a microchip with information about the customer's accounts and could be used as a debit card. In 1990 Connecticut-based People's Bank became the first financial institution to offer a three-way card combining a credit card, telephone calling card, and debit card. By networking the computer systems at a bank and a telephone company, such a card could be used by the consumer to interact with hardware systems at both companies. The consumer could also access interactive video technology to use the thrift as a financial supermarket, getting visual information about different rates, loans, and investment products before speaking with a customer service representative. With the completion of the electronic superhighway, consumers would be able to do this at home for thrifts all across the country, reducing the local saturation of some thrifts.

As the amount of free time available to Americans declined, thrifts responded to the demand for faster service through electronic banking, phone banking, and direct deposit. In addition to a hope of improved service, thrifts looked ahead to cutting costs by using smaller, better-trained staffs supported by high-tech automation. By the late 1990s, other means to cut costs using technology included creating bank branches consisting of ATMs and kiosks. Kiosks added a new dimension to an ATM transaction; the kiosk allowed the bank customer to communicate with bank personnel via remote and inter-active video.

Further Reading

Banking. New York: Insurance Information Institute, 2002. Available from http://www.financialservicesfacts.org.

The Financial Services Fact Book 2003. "Thrift Institutions." Available from http://www.financialservicesfacts.org.

"The Forbes Platinum List: Banking." Forbes, 11 January 1999.

"It's a Wonderful Loophole." Business Week, 22 March 1999.

Office of Thrift Supervision. "OTS Director Gilleran Reports Thrifts Reach Record $10.2 Billion in Earnings in 2001," 2 February 2002. Available from http://www.ots.treas.gov.

——. "The OTS Regulated Thrift Industry Fourth Quarter 2001 Highlights," 6 March 2002. Available from http://www.ots.treas.gov.

"Understanding Fannie Mae," 1998-2003. Available from http://www.fanniemae.com.

U.S. Bureau of Labor Statistics. "Tellers." Occupational Out-look Handbook, 2002-03 Edition. Available from http://www.bls.gov.

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