ABC of banking
Provided by the State of Connecticut, Department of Banking, based on information from the Conference of State Bank Supervisors (CSBS)
Banks, thrift associations and credit unions - what's the difference?
There are three main types of depository institutions in the United States. These are commercial banks, savings banks (including savings and loan associations and savings banks), and credit unions.
These three types of institutions have become increasingly similar in recent decades and their unique identities have become less clear. However, they still differ in specialization and emphasis and in regulatory and supervisory structures.
Commercial banks are the traditional “warehouses” of the financial services world. Thrifts and credit unions are more like specialty stores that have expanded their operations over time to better compete for market share. (Connecticut law essentially gives thrifts the same powers as commercial banks).
Commercial banks
Commercial banks are generally limited liability companies whose primary function is to generate profits for their shareholders. Basically, banks receive deposits and hold them in different accounts; providing credit through loans and other instruments: and facilitating the movement of funds. Although commercial banks specialize mainly in short-term business loans, they also provide consumer and mortgage loans and have a wide range of financial powers. Their corporate charters and the powers granted to them by state and federal law determine the scope of their activities.
States and the federal government each issue banking charters. State-chartered banks operate under state supervision, and if they fail, they are closed under provisions of both state and federal law. National banks are chartered and regulated by the Office of the Comptroller of the Coin (OCC), a division of the Treasury Department. Banks can choose between a state or federal charter when starting their business, and can also switch from one charter to the other after starting up. Commercial banks receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund (BIF). All national banks and some state-chartered banks are members of the Federal Reserve System.
Savings and loans/savings banks
Savings and loan associations and savings banks specialize in real estate loans, especially loans for single-family homes and other residential properties. They can be owned by shareholders ("pils"property") or by their savers and borrowers ("mutual"property). These settings are "thrift", because they originally only offered savings accounts or term deposits. However, over the past twenty years they have acquired a wide range of financial powers and now offer checking accounts (demand deposits) and provide both corporate and consumer mortgages.
Both savings and loan associations and savings banks can be chartered by the federal Office of the Comptroller of the Monet (OCC) or by a state regulator. Generally, savings and loan associations are insured by the Savings Association Insurance Fund (SAIF) and savings banks by the Bank Insurance Fund (BIF).
Savings associations must have a certain percentage of their loan portfolio in home-related assets to maintain their charter and membership in the Federal Home Loan Bank System. This is called the qualified thrift lender (QTL) test. Savings institutions must hold 65% of their portfolio in housing-related or other eligible assets to maintain their status. The recent liberalization of the QTL test has allowed frugal assets to use some non-household assets to meet this requirement.
In the late 1980s and early 1990s, the number of thrifts dropped dramatically. The savings and loan crisis of the 1980s forced many institutions to close their doors or merge with others, at extraordinary costs to the federal government. However, in subsequent years there was a revival of interest in the Thrift Charter. The recapitalization of the thrift fund, a revived industry and legislative changes made the charter – once doomed to extinction – an attractive path to financial modernization for some. As a result of the liberalization of the qualified thrift lender test, many insurance companies and securities firms, as well as commercial businesses, can now qualify as unitary savings holding companies and own depository institutions, thereby circumventing the Glass Steagall Act and Bank Bank prohibitions. To cling. The Companies Act. Critics of a revived thrift charter have said it has benefited a certain class of financial institutions, underscoring the need for broader financial modernization through federal legislation.
Credit unions
Credit unions are cooperative financial institutions formed by groups of people with a 'common bondThese groups of people pool their funds to form the institution's deposit base; the group jointly owns and controls the institution. Membership in a credit union is not open to the public, but is limited to individuals who share the common bond of the group that created the credit union. Examples of this common bond include working for the same employer, belonging to the same church or social group, or living in the same community. Credit unions are not-for-profit institutions that seek to encourage savings and earn surplus funds within a community. available to their members at low cost.
Credit unions accept deposits into a variety of accounts. All credit unions offer savings accounts or term deposits; the larger institutions also offer checking and money market accounts. The financial powers of credit unions have expanded to include virtually everything 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 taxes and sometimes receive subsidies, in the form of available space or inventory, from their sponsoring organizations.
Credit unions were first chartered at the state level in the United States in 1909. The federal government began chartering credit unions under the Farm Credit Association in 1934 and created the National Credit Union Administration (NCUA) in 1970. States and the federal government continue to charter credit unions; Nearly all credit unions are insured by the National Credit Union Share Insurance Fund, which is controlled by the NCUA. In Connecticut, state-chartered credit unions are overseen by the Department of Banks.Financial Institutions.
Connecticut law allows for several types of specialized bank charters within these broad categories. For more information on specific charter types, see our page atto organize a bank.
The dries: Banks and their supervisory authorities
