S&L Flexible Porfolio Lending

Bailey BrosDepositAccounts.com quoted me in Types of Institutions in the U.S. Banking System – Savings and Loan Associations. It opens,

When you think of a savings and loan, maybe you think of the Bailey Savings & Loan from the movie It’s a Wonderful Life or remember the savings and loan crisis of the 1980s, when more than 1,000 savings and loans with over $500 billion in assets failed.

But there’s much more to the story. Savings and loan associations originally specialized in home-financing, be it a mortgage, home improvements or construction. According to Encyclopedia Britannica, Savings and loan associations originated with the building societies of Great Britain in the late 1700s. They consisted of groups of workmen who financed the building of their homes by paying fixed sums of money at regular intervals to the societies. When all members had homes, the societies disbanded. The societies began to borrow money from people who did not want to buy homes themselves and became permanent institutions. Building societies spread from Great Britain to other European countries and the United States. They are also found in parts of Central and South America. The Oxford Provident Building Association of Philadelphia, which began operating in 1831 with 40 members, was the first savings and loan association in the United States. By 1890 they had spread to all states and territories.

Today, explains, David Bakke, a financial columnist for MoneyCrashers.com, explains how S&Ls have evolved. “More recently, they have also expanded into areas such as car loans, commercial loans and even mutual fund investing. Currently, there isn’t much difference between them and other types of financial institutions.”

S&Ls are a type of thrift institution. Like all financial institutions they are bound to rules and regulations. They can have a state or federal charter. Those with a federal charter are regulated by the Office of the Comptroller of the Currency (OCC). The Office of Thrift Supervision (OTS) used to be the regulator before it was merged with the OCC in 2011.

Another big change that impacted S&Ls was the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). It abolished the Federal Savings and Loan Insurance Corporation, which had provided deposit insurance to savings and loans since 1934. It created two insurance funds, the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF), which were both administered by the FDIC. Those two funds were merged into the Deposit Insurance Fund (DIF) in 2006. In summary, your deposits at S&Ls today are insured by the FDIC.

If you’re wondering how S&Ls work, to put it simply, the money you deposit into your savings account, is used to fund the money the S&L doles out in loans.

Savings and loans have some advantages over other types of institutions. “Many S&Ls keep many of the loans that they originate in their own portfolio instead of selling them off for securitization.  This means that they often have more flexibility in their underwriting criteria than do those lenders that sell off their mortgages to Fannie, Freddie and Wall Street securitizers.  This means that borrowers with atypical profiles or borrowers interested in atypical properties might be more likely to find a lender open to a nontraditional deal in the S&L sector,” says David Reiss, a professor at Brooklyn Law School, that specializes in real estate.

Hockett on Postliberal Finance

Bob Hockett has posted Preliberal Autonomy and Postliberal Finance to SSRN. The abstract reads,

Even American Founders whose views diverged as dramatically as those of Jefferson and Hamilton shared a view of finance and of enterprise that one might call “productive republican.” Pursuant to this vision, financial and other forms of market activity are instrumentally rather than intrinsically good — and for that very reason are of interest to the public qua public rather than to the public qua aggregate of “private” individuals. Citizens are best left free to engage in financial and other market activities, per this understanding, only insofar as these are consistent with sustainable collective republic-making. And the republic — the res publica or “thing of the public” — for its part devotes many of its energies to the task of fostering and maintaining a materially independent republican citizenry. State and citizen are thus mutually constituting and mutually supporting, per this vision, and finance is important primarily in its capacity to nurture that symbiosis.

The productive republican view of finance can be illuminatingly contrasted with another view of more recent vintage, which one might call “liberal.” The liberal view takes market activity to be an intrinsic good, if not indeed a matter of inherent political-cum-moral right. Markets on this view are as it were natural social outgrowths of and aggregated counterparts to inherently “free” individual choices — choices that all of us, in both our individual and our collective capacities, are ethically bound to respect insofar as they don’t impose illegitimate costs upon others. So-called “public” interventions in “private” markets are accordingly fit subjects of suspicion and scrutiny per the liberal view. They are presumptively problematic unless and until proven otherwise, while “proof otherwise” for its part typically takes the form of proof that the intervention protects putatively pre-political freedom itself.

I claim in this article, a solicited symposium contribution, that American financial law, and economic law more generally, were once highly productive-republican in character, and that many financial, economic and, in consequence, political dysfunctions with which we have become familiar in recent decades stem from those laws’ having become steadily more liberal in character over time. I also argue that a number of essays, articles, and monographs published over the last twenty years or so under the rubrics of “banking the poor,” “alternative banking,” or “democratized finance” are, in effect if not self-conscious intention, attempts at partial recovery of the productive republican tradition — at least in the realm of finance. They are in this sense what might be called “post-liberal” in sensibility, if not quite in self-conscious aim. Their project can accordingly be aided, I aim to show, by affording them a form of reflective project-consciousness. That consciousness, however, once attained, will not be satisfied with post-liberal finance alone. It will demand a post-liberal economics.

This symposium piece is particularly compelling because it includes a personal story about Bob’s involvement with a “homeless kibbutz.” No spoilers, so you’ll have to read it yourself.