180 Unit 2 Managing Your Finances
Savings and Loan Associations
Savings and loan associations (S&L) are fi nancial institutions that
previously only made mortgage loans and paid dividends on depositors’
savings. Today savings and loan associations offer most of the services
commercial banks do. They may be state or federally chartered. There are
two types of savings and loans.
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Mutual savings and loan associations are owned by and operated for
the benefi t of their depositors. These depositors receive dividends on
their savings.
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Stock savings and loan associations are owned by stockholders. Like
commercial banks, these companies operate for profi t.
Credit Unions
A credit union is a nonprofi t fi nancial cooperative owned by and oper-
ated for the benefi t of its members. Its services are offered only to members.
Membership is available through affi liation with an employer, a union, reli-
gious organization, community organization, or some other group.
Since credit unions are not-for-profi t organizations, they pay no fed-
eral income taxes. Members often run them, and operating costs may be
relatively low. For these reasons, successful credit unions can lend funds
to members at slightly lower rates than other fi nancial institutions. They
ECONOMICS
ACTIONin
A Banking System Breakdown A Banking System Breakdown
The U.S. economy depends on the fl ow of
money and the services fi nancial institutions
provide. When that fl ow stops, all parts of the
economy are negatively affected. Such an event
began in the fall of 2008.
Many fi nancial institutions in the United States
and around the world lost billions of dollars on risky
real estate loans and other investments. Some of
them, including banks and big Wall Street fi nancial
fi rms, failed. Other fi rms were weakened and
taken over by stronger companies. Still others
received funds from the federal government to
help them stay in business.
Even with billions of dollars pumped into the
banking system by the federal government, money
did not circulate freely. Banks drastically reduced
lending, triggering a downward spiral in the
economy. Many consumers could not get loans
for cars, homes, or other needs. Businesses could
not borrow to expand, meet payrolls, or pay for
inventories. They grew cautious and cut spending.
Firms focused on survival by cutting spending as
well as their workforce.
Unemployment grew to new highs. Even
consumers who had jobs lost confi dence and
cut their spending. Demand for goods and
services fell. Many businesses posted losses, and
eventually some failed. The economy went into a
serious recession.