WHAT'S THE DIFFERENCE?

Banks, Thrifts and Credit Unions

There are three major types of deposit-taking institutions in the United States. These are banks, thrifts, (which include savings and loan associations and savings banks), and credit unions. These types of institutions have become more like each other in recent decades, and their unique identities have become less distinct. They still differ, however, in specialization and emphasis, and in their regulatory and supervisory structures. Commercial banks are the "department stores" of the financial services world. The thrift institutions and credit unions are more like specialty shops that, over time, have expanded their lines of business to better compete for market shares.

Commercial Banks

Commercial banks are stock corporations that make loans to businesses and offer checking and other deposit accounts. Basically, banks receive deposits, and hold them in a variety of different accounts, extend credit through loans and other instruments and facilitate the movement of funds. While commercial banks generally specialize in short-term business credit, they also make consumer loans and mortgages, and have a broad range of financial powers. Their corporate charters and the powers granted to them under state and federal law determine the range of their activities.

States and the federal government each issue bank charters. State-chartered banks operate under state supervision, and if they fail, are closed under the provisions of state law. National banks are chartered and regulated by the Office of the Comptroller of the Currency, a division of the U.S. Treasury Department. Banks can choose between a state and a federal charter when starting their business, and can also convert from one charter to another. Commercial banks receive deposit insurance from the Federal Deposit Insurance Corporation's Bank Insurance Fund (BIF). All national banks, and some state-chartered banks, are members of the Federal Reserve System. Commercial banks maintain a preeminent role in the U.S. financial system. Today, there are 7,524 state-chartered and 3,191 federally-chartered commercial banks. Commercial banks hold approximately $3.9 trillion in assets, and approximately $2.8 trillion in deposits.

Savings and Loans / Savings Banks

Savings and loan associations and savings banks specialize in real estate lending, particularly loans for single-family homes and other residential properties. They can be owned by shareholders ("stock" ownership), or by their depositors and borrowers ("mutual" ownership). These institutions are referred to as "thrifts," because they originally offered only savings accounts, or time deposits. Over the past two decades, however, they have acquired a wide range of financial powers, and now offer checking accounts (demand deposits) and make business and consumer loans as well as mortgages.

Savings institutions must hold a certain percentage of their loan portfolio in housing-related assets to maintain their special tax status and their membership in the Federal Home Loan Bank System. This is called the "qualified thrift lender" (QTL) test. Savings institutions must maintain 65% of their portfolio in housing-related assets to maintain their membership in the Federal Home Loan Bank System and 60% to qualify for special tax treatment.

Both savings and loan associations and savings banks may be chartered by the Office of Thrift Supervision (OTS) or by the state savings and loan supervisor. Generally, savings and loan associations are insured by the Savings Association Insurance Fund (SAIF), and savings banks are insured by the Bank Insurance Fund (BIF).

The number of savings institutions has declined dramatically in the past decade as differences have narrowed between these institutions and commercial banks. The savings and loan crisis of the 1980s forced many thrifts to close or merge with other institutions. Today, 1,894 savings and loans and 323 savings banks continue to operate. Together, they hold $999 billion in assets and $756.9 billion in deposits.

Credit Unions

Credit unions are cooperative financial institutions, formed by groups of people with a common bond. These groups of people pool their funds to form the institution's deposit base; the group owns and controls the institution together. Membership in a credit union is not open to the general public, but is restricted to people who share the common bond of the group that created the credit union. Examples of this common bond are working for the same employer, belonging to the same church or social group, or living in the same community. Credit unions are nonprofit institutions that seek to encourage savings and make excess funds within a community available at low cost to their members.

Credit unions accept deposits in a variety of accounts. All credit unions offer savings accounts, or time deposits; the larger institutions also offer checking and money market accounts. Credit unions' financial powers have expanded to include almost anything a bank or savings association can do, including making home loans, issuing credit cards, and even making some commercial loans. Credit unions are exempt from federal taxation and sometimes receive subsidies, in the form of free space or supplies, from their sponsoring organizations.

Credit unions were first chartered in the U.S. in 1909, at the state level. The federal government began to charter credit unions in 1934 under the Farm Credit Association, and created the National Credit Union Administration (NCUA) in 1970. States and the federal government continue to charter credit unions. All credit unions are insured by the National Credit Union Share Insurance Fund, which is controlled by NCUA.

Today, there are more than 12,000 credit unions. These organizations hold $257.8 billion in deposits and $289.6 billion in assets.