Productivity at your daily life

2. Savings and loan associations (S&Ls), which have traditionally served individual savers and residential and commercial mortgage borrowers, take the funds of many small savers and then lend this money to home buyers and other types of borrowers. Because the savers obtain a degree of liquidity that would be absent if they made the mortgage loans directly, perhaps the most signi?cant economic function of the S&Ls is to “create liquidity” which would otherwise be lacking. Also, the S&Ls have more expertise in analyzing credit, setting up loans, and making collections than individual savers, so S&Ls can reduce the costs of processing loans, thereby increasing the availability of real estate loans. Finally, the S&Ls hold large, diversi?ed portfolios of loans and other assets and thus spread risks in a manner
that would be impossible if small savers were making mortgage loans directly. Because of these factors, savers bene?t by being able to invest in more liquid, better managed, and less risky assets, whereas borrowers bene?t by being able to obtain more capital, and at a lower cost, than would otherwise be possible.

In the 1980s, the S&L industry experienced severe problems when (1) shortterm interest rates paid on savings accounts rose well above the returns being earned on the existing mortgages held by S&Ls and (2) commercial real estate suffered a severe slump, resulting in high mortgage default rates. Together, these events forced many S&Ls to either merge with stronger institutions or close their doors.

3. Mutual savings banks, which are similar to S&Ls, operate primarily in the northeastern states, accept savings primarily from individuals, and lend mainly on a long-term basis to home buyers and consumers.
4. Credit unions are cooperative associations whose members are supposed to have a common bond, such as being employees of the same ?rm. Members’ savings are loaned only to other members, generally for auto purchases, home improvement loans, and home mortgages. Credit unions are often the cheapest source of funds available to individual borrowers.
5. Life insurance companies take savings in the form of premiums; invest these funds in stocks, bonds, real estate, and mortgages; and ?nally make payments to the bene?ciaries of the insured parties. In recent years, life insurance companies have also offered a variety of tax-deferred savings plans designed to provide bene?ts to the participants when they retire.

Taken From : Five-Minute MBA – Corporate Finance

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