Office of Thrift Supervision
History
Comly Rich House
In early 1831, three town leaders in Frankford, Pennsylvania, outside of Philadelphia, met in a local tavern to plan how local townspeople could pool their money to accomplish together what they lacked the financial resources to do alone—buy their own homes. In doing so, they established the nation’s first savings association, the Oxford Provident Building Association, modeled after mutual building societies in England. Each member paid an initial fee of $5 per share and $3 per month thereafter. As their savings grew, association members were able to finance their American dream of homeownership. The association provided its first mortgage in April 1831 to a local lamplighter named Comly Rich, who obtained a loan for a $375 home that still stands on Orchard Street in Philadelphia County, Pennsylvania.
By the late 1890s, there were more than 5,000 savings associations across the country. These institutions were typically founded by people who lived in the same neighborhoods or worked in the same factories. Thrifts continued to thrive in the early 1900s and, by the 1920s, there were about 12,000 savings institutions (known by various names, including savings and loans, building and loans, thrift and loans, thrifts, savings banks, building associations, thrift associations and savings associations). Industry growth during this time was fueled largely by the influx of Americans into the cities from rural areas, driving up the demand for housing.
The end to these boom times came in the early 1930s when the Great Depression devastated the housing market and caused many savings associations to fail. The federal government soon stepped in with a series of laws to support homeownership. The first law established the Federal Home Loan Bank System of 12 regional Federal Home Loan Banks that provided mortgage funding for savings associations across the country. Next, Congress created the Federal Home Loan Bank Board, the predecessor agency of the OTS, to grant federal charters for savings associations and establish a regulatory system to promote homeownership. A third law founded the Federal Savings and Loan Insurance Corporation to insure deposits at the nation’s savings and loan institutions.
Strong industry growth returned after World War II when veterans sought homes and large suburban communities took root. Savings and loan associations, or S&Ls, were the major players in the growth of the housing markets and the housing economy during this time, providing mortgages for individual homes and entire new housing developments. Demand remained strong throughout the 1950s and 1960s, when S&Ls originated two-thirds of the nation’s home mortgages. At the time, most savings associations held more than 80 percent of their assets in home loans, relying on a business model that hinged on interest received from mortgages being comfortably higher than the interest paid out to depositors.
In the late 1970s, interest rates rose sharply and competition for deposits increased dramatically. Consumers seeking better deposit-rate returns had more choices among financial services providers. Also, a federal ban on adjustable-rate mortgages locked S&Ls into long-term, fixed-rate mortgage loans that produced below market-rate returns as interest rates rose.
In the early 1980s, interest rates climbed to unprecedented levels, undermining the viability of the S&L business model. Many institutions were economically insolvent. In an effort to help the industry “grow” out of its problems, the government deregulated the lending and investment powers of savings and loans, and gave them full access to federally insured deposits to fund their new lending and investment powers. Marginally profitable and unprofitable savings and loans began to engage in aggressive and risky investment and lending strategies that compounded their existing problems. As a result, hundreds of S&Ls failed and closed in the late 1980s and early 1990s.
In 1989, Congress passed a law that dramatically restructured the banking business, moved deposit insurance for savings associations to the Federal Deposit Insurance Corporation and established the OTS to supervise, charter and regulate the thrift industry.
Today, the thrift industry has fewer institutions than during its peaks in the past, but industry assets remain close to the historic high reached in late 2006. In addition, the industry stands on a solid foundation of profitability and strong capital. Although many savings associations continue to focus mainly on home lending, the industry has grown far more diverse and now includes an array of modern financial service enterprises that operate from coast to coast and, at the holding company level, are active players internationally.