US Credit and Payments, 1800–1935, Part I

Though today the terms building and loan associations and savings banks have virtually disappeared in the names of financial institutions in the US, at one time there was a clear distinction between banks of deposit, savings banks and building and loan associations. Today only thirteen institutions that have federal deposit insurance contain the phrase ‘building and loan association’ in their name. After the reforms of the New Deal Era in the 1930s which included the federal chartering and regulation of savings banks and building and loan associations, and the creation of the Federal Home Loan Bank System, these institutions became known as savings and loan associations and their federal regulator was the Federal Home Loan Bank Board which was renamed the Office of Thrift Supervision (OTS) after the financial crisis of the 1980s. In 2011, the OTS was merged with the Office of the Comptroller of the Currency (OCC) and its insurance fund was merged with the bank insurance fund operated by the Federal Deposit Insurance Corporation (FDIC).

The long-standing English and American concerns about usury and empathy for the poor provided the moral foundation for the creation of provident loan societies (PLSs) in the US in the latter part of the nineteenth century. The PLSs were intended to help the labouring classes obtain access to credit while avoiding the very high interest rates charged by loan sharks. Given the frequency and severity of financial panics, it is not surprising that loan sharks who operated primarily in large cities, such as New York, grew rapidly in the latter part of the nineteenth century, though accurate data on their growth is impossible to obtain. Although economists might suggest that competition among loan sharks could bring interest rates down, in practice this was unlikely to be the case. Information on consumer creditworthiness was difficult to obtain (credit cards for consumers did not exist) and the markets were highly segmented. Loan sharks operating in the New York City borough of Manhattan did not have to worry about competition from loan sharks in the borough of Queens.

The first savings bank in the US was the Provident Institution for Savings, which was incorporated in Boston, 13 December 1816. As of 2012, there were 7,235 chartered and federally regulated financial institutions that were members of the Federal Deposit Insurance Corporation (FDIC) and of those, 519 included in their name ‘savings bank’. These institutions arose to provide a way for the average worker to save some of their income.