Savings and loan associations
were established to finance the purchase of homes with the funds
accumulated from member deposits. Savings and loan associations in
the United States are direct descendants of the building societies
established in England in the early 1800s. The first savings and
loan association in the United States, Oxford Provident Building
Association, was established in 1831 in Frankford, Pennsylvania.
Oxford was one of the first associations to use member’s deposits to
finance the purchase of existing homes and the construction of new
homes.
The first Ohio
savings (or building) and loan was incorporated in 1867 and was
known as The Cleveland Land, Building, Loan Association. Thereafter,
the building and loan industry in Ohio grew very rapidly. During the
25-year period from 1867 through 1892, 1,548 associations were
organized; yet, nearly 850 of these associations subsequently failed
and were ultimately liquidated.
In the late
1800s, the states were the first to enact specific regulatory
measures for oversight of the building and loan industry. The State
of Ohio began formally regulating savings and loan associations in
1892. In 1934, a year after the formation of the Federal Deposit
Insurance Corporation (FDIC), the Federal Savings and Loan Insurance
Corporation (FSLIC) was established providing federal insurance of
accounts for savings and loans associations. About the same time,
the Federal Home Loan Bank Board (FHLBB) was established as the
federal regulatory agency for savings and loan associations.
Prior to 1985,
Ohio state-chartered savings and loan associations had the following
options for deposit insurance: federal deposit insurance through
FSLIC, private deposit insurance through the Ohio Deposit Guarantee
Fund (ODGF), or no deposit insurance. In March 1985, the Home State
Savings Bank of Cincinnati (Home State) incurred heavy losses, which
ultimately totaled over $275 million. The resulting withdrawals by
the depositors of Home State and 69 other ODGF institutions proved
unstoppable and the private insurer (ODGF) could not cover all of
the withdrawals. Unable to stop the runs on deposits, all 70 ODGF
institutions were ordered closed by Governor Richard Celeste on
March 15, 1985. After obtaining federal deposit insurance,
65 of these institutions were allowed to reopen. The State
of Ohio liquidated four institutions, including Home State.
In 1989, due to mounting losses in the savings and
loan industry, President George Bush signed into law the Financial
Institution Reform, Recovery, and Enforcement Act (FIRREA). FIRREA’s
main purpose was the creation of the Resolution Trust Corporation
(RTC) to clean up the failed or troubled savings and
loan institutions. During the six years of its operation, the RTC
closed 747 savings associations nationwide resulting in an estimated
$90 billion in losses to taxpayers. In Ohio, six state-chartered
institutions were seized by the RTC in the period from 1989 through
1992. Since 1992, no Ohio-chartered savings associations have
failed.
In addition,
FIRREA created the successor to the FHLBB; the Office of Thrift
Supervision (OTS) became the new federal thrift regulatory agency in
1989. Another result of FIRREA was the abolishment of the FSLIC and
the creation of the Savings Association Insurance Fund (SAIF) for
all savings and loan associations. Commercial bank deposits are
covered by the Bank Insurance Fund (BIF). The FDIC administers both
insurance funds.
After the enactment of FIRREA in 1989, several states, including
Ohio, created a state savings bank charter, which reduces the regulatory
burden by removing one layer of federal regulation. The law
creating the savings bank charter was enacted in Ohio in October
1991. Since 1991, the Division has approved 43 state savings bank
charters.
Savings and loan
associations and savings banks can be either mutual institutions,
which are owned by the depositors, or stock companies.
Savings and Loans
The primary
regulator of state-chartered savings and loan associations is the
State of Ohio. Chapter 1151 of the Ohio Revised Code governs the
creation and operation of state-chartered savings and loan
associations. Regulation of state-chartered savings and loans is the
responsibility of the Division of Financial Institutions, Ohio
Department of Commerce.
The Office of
Thrift Supervision (OTS) is the federal regulator of state-chartered
savings and loan associations. The OTS has a regional office located
in Chicago, Illinois, and Ohio field offices in Cincinnati and
Cleveland. The OTS also regulates savings and loan holding
companies. In addition, the State of Ohio regulates all savings and
loan holding companies that own state-chartered savings and loans.
The FDIC, as the insurer of accounts, has backup
regulatory authority for all state and federally chartered savings
and loans. In practice, the FDIC reviews examination reports
prepared by the state and federal regulators and monitors financial
information off-site. In addition, the FDIC will exercise its backup
authority in cases where an institution represents a threat to the
SAIF.
Savings Banks
The primary
regulator of state-chartered savings banks is the State of Ohio.
Chapter 1161 of the Ohio Revised Code governs the creation,
conversion, and operation of state-chartered savings banks.
Regulation of state-chartered savings banks is the responsibility of
the Division of Financial Institutions, Ohio Department of
Commerce.
The FDIC is both
the insurer of accounts and the federal regulatory agency of
state-chartered savings banks. The FDIC operates a regional office
in Chicago, and maintains a field office in Columbus. Savings bank
holding companies (by federal statute) have the option to choose to
be either a savings and loan holding company (regulated by the OTS)
or a bank holding company (regulated by the Federal Reserve Bank).
The Ohio Division of Financial Institutions examines all holding
companies of savings banks whether they are savings and loan or bank
holding companies.
Through
application to the Ohio Division of Financial Institutions, savings
and loans and savings banks can open a branch, change their form of
ownership (mutual to stock), convert to a state-chartered
institution, form a holding company, or acquire or merge with
another institution. In addition, the closing of a branch requires
only a 60-day advance notification.
For both savings
and loans and savings banks, the Superintendent of Financial
Institutions (by statute) has the authority to conduct special
examinations, require monthly financial reports, enter into formal
supervisory agreements, initiate cease and desist proceedings, and
remove, with cause, officers and directors. The initiation of cease
and desist proceedings and the removal of officers or directors both
require hearings in accordance with Chapter 119 of the Ohio Revised
Code. In addition, the Division does have the ability, if the
situation warrants, to place an institution into conservatorship
and/or receivership.
