What Is a Savings and Loan Association?

The Savings and Loan Association is a non-bank financial institution that specializes in savings business and home mortgage loans under the support and supervision of the US government. The motivation is to provide financing for the purchase of the house, and the loan should be collateralized by the purchased house. Its forms are mutual aid system and joint-stock company system. Mutual assistance means that there are no outstanding shares, and the depositor is the owner. In order to improve the ability of the Savings and Loan Association to expand the source of capital, lawmakers have enacted legislation to promote the transformation of the mutual aid system into a joint-stock company system. Like banks, savings and loan associations can be registered federally or stately and must comply with the Federal Reserve's deposit reserve requirements. After the passage of the US Financial Institutions Reform, Recovery, and Implementation Act, deposit insurance for the Savings and Loan Association was provided by the Savings Association Insurance Fund. The fund is administered by the Federal Deposit Insurance Corporation. Assets that allow savings and loan associations to invest in are mortgages, mortgage securities, and government bonds. Mortgages include fixed-rate mortgages, variable-rate mortgages, and other types of mortgages. Most mortgages are used to buy a home, and the Savings and Loan Association also issues some constructive loans. ^[1]

Savings and Loan Association

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The Savings and Loan Association is a non-bank financial institution specialized in savings business and home mortgage loans under the support and supervision of the US government. The motivation is to provide financing for the purchase of the house, and the loan should be collateralized by the purchased house. Its forms are mutual aid system and joint-stock company system. Mutual assistance means that there are no outstanding shares, and the depositor is the owner. In order to improve the ability of the Savings and Loan Association to expand the source of capital, lawmakers have enacted legislation to promote the transformation of the mutual aid system into a joint-stock company system. Like banks, savings and loan associations can be registered federally or stately and must comply with the Federal Reserve's deposit reserve requirements. After the passage of the US Financial Institutions Reform, Recovery, and Implementation Act, deposit insurance for the Savings and Loan Association was provided by the Savings Association Insurance Fund. The fund is administered by the Federal Deposit Insurance Corporation. Assets that allow savings and loan associations to invest in are mortgages, mortgage securities, and government bonds. Mortgages include fixed-rate mortgages, variable-rate mortgages, and other types of mortgages. Most mortgages are used to buy a home, and the Savings and Loan Association also issues some constructive loans. ^[1]

Savings and Loans Associations

The first savings and credit association was born in Pennsylvania in 1831. However, the development is relatively slow. From the end of the Second World War to the 1970s, the demand for the US housing market became increasingly strong, which brought a golden period for the development of the Savings and Credit Association. By the end of the 1970s, the total assets of the American Savings and Credit Association had exceeded $ 600 billion, becoming one of the financial giants in the United States. In the late 1980s and early 1990s, real estate prices in the United States fell sharply, and a large number of customers in the real estate industry defaulted, resulting in a large number of bad assets in banks. S & L, which is mainly engaged in the real estate industry, is generally in serious distress, and quite a few of them have lost their ability to pay, forming one of the largest financial crises in developed countries since the 1970s.

For example, to put it simply, there is a group of people, such as 10, each of whom contributes $ 100,000, and a total of $ 1 million is collected as shareholder equity, and then a $ 19 million deposit is absorbed, and then issued About $ 20 million in loans. The main profit model of this type of company is very simple, that is, to borrow the absorbed money and earn a simple spread. It's such a simple business.

Since the 1980s, both developed and developing countries have been plagued by serious problems with bad bank debts, and they have been caught in the wave of bankruptcy and the collapse of financial institutions. In the process of dealing with these failed financial institutions, countries have adopted a series of comprehensive measures according to the different reasons, scope of influence and severity of their failures, and have formed different treatment models. There are:

Thailand, Indonesia, South Korea and other countries have all adopted this model. After the 1997 financial crisis, Southeast Asian countries are committed to rectifying the financial order and handling bankrupt financial institutions through domestic and international joint funding. In October 1997, the Thai government adopted a package of comprehensive financial reforms. The Thai Financial Reform Agency was established to clean up and close bankrupt financial institutions. The newly established asset management company was responsible for receiving bad debts. (IMF) provided US $ 17.2 billion in aid funds. In December 1997, the Financial Reform Agency announced the closure of 56 financial institutions and listed 15 other banks and 35 financial institutions as targets for rectification. The Indonesian government also closed 16 banks with bad debts in November 1997. On December 31, the Indonesian government announced the merger of four state-owned banks into two through mergers and privatizations, and its non-performing assets were received by the newly established credit liquidation company. During the crisis, Indonesia received a total of US $ 23.9 billion in aid from the IMF. At the same time, the government encouraged foreign banks to invest in Indonesia's state-owned banks. South Korea, while announcing the suspension of operations on five insolvent banks and securities companies, introduced a series of financial countermeasures, such as the government s financial allocation of 350 million won to buy bad debts of banks and financial institutions, and consolidation of institutions that cannot help themselves Wait. In order to obtain IMF assistance, the Korean Parliament also adopted a reform plan on December 29, 1997, deciding to reorganize domestic financial institutions in accordance with international standards. The collapse of financial institutions in Southeast Asian countries was intertwined with other issues. The measures adopted were as follows: In order to obtain international assistance, in order to obtain international assistance, IMF has to accept the reorganization arrangements of the IMF unconditionally, such as further opening up domestic financial markets and allowing foreign financial institutions to enter domestic operations, which has brought huge competitive pressure on domestic banks. However, as the IMF proposes to increase the transparency of the banking system and strengthen the supervision of the financial system in order to meet the capital adequacy ratio requirements set out in the Basel Accords, these have positive implications for improving the asset status of financial institutions.

In the process of dealing with insolvent financial institutions, each country has established special reorganization companies or liquidation institutions. Some of these institutions are independent companies, while others are institutions established within the financial institutions in question, but their functions are broad. The same is mainly for asset takeover, asset evaluation, asset transfer, asset preservation and asset disposal of bankrupt financial institutions. Specifically, the main measures taken by these institutions in dealing with insolvent financial institutions are:

(1) Takeover, evaluation, transfer or acquisition of assets. In the United States, when the Savings and Loan Association Supervisory Authority made a decision to close, RTC took over the failed S & L. Based on the assessment of the value of S & L assets and collateral, RTC accepts the corresponding assets, assumes full responsibility, and establishes an asset transfer committee (members include S & L and RTC personnel) to determine all matters concerning the transfer of assets from S & L to RTC. For emerging or potential default loans, RTC may require borrowers to add collateral to preserve assets. In Japan, the common debt acquisition companies initially dealt with the 162 bad debts of 162 financial institutions (mainly residential financial professional companies). The main process is as follows: first, the non-performing debts with real estate guarantee attached to the investment institution are evaluated; then the non-performing debts are acquired at the appraisal price, and the cost is recorded as the loan of the investment institution to the common credit company and the real estate transfer is guaranteed; finally, the common debt is acquired The company sells the collateral and returns the loan from the funding agency. From March 1993 to September 1996, it acquired 9,075 claims and handled 1,292 million yen of non-performing claims. In July 1996, seven residential financial professional companies declared bankruptcy with a total of 13.12 trillion yen in debt, of which the recovery of hopeless claims was 6.4l trillion yen. The parent bank of residential financial professional companies, other financial institutions and the government The joint funding will be used to make up for the remaining 6.71 trillion yen, which is expected to be recovered, and will be acquired by the residential financial debt management agency and processed by auction. The government and the deposit insurance institution will share half of the losses incurred during the auction. In September 1996, the collating and recycling bank took over the bankrupt financial cooperation organizations such as the former East Union Concord, the Security Credit Rating Group, and the Yaojin Credit Group, and acquired 390 billion yen of non-performing debts.

(2) A large number of capital injections, expansion of stocks and capital, reorganization of institutions, and stripping of bad debts. In the afternoon of 1994, Lyon Credit Bank's non-performing debt reached US $ 27 billion, so the French government established a special purpose company (SPBL) to implement the rescue plan. First, the government injected 23 billion francs into the bank and assumed bad debts of 43 billion francs. Then CDR was established as a wholly-owned subsidiary of Credit Lyonnais, responsible for all the bank's liabilities, and responsible for the liquidation and sale of assets. Credit Lyonnais later provided SPBL with a preferential interest rate (calculated at 85% of the Paris market interest rate) of 145 billion francs, and SPBL sub-loaned 131 billion francs to CDR to cover its losses in the sale and sale of assets CDR repaid the SPBL loan with the proceeds of the sale of assets, and the losses in asset restructuring were guaranteed by the government. Italy has also taken a large amount of government capital injections in the process of handling the bad assets of the Bank of Naples. Naples Bank is a partially commercial government-owned commercial bank with a loss of 31,550 billion lire in 1995. In order to save the bank, the Italian Central Bank of Italy arranged a temporary loan of 25 billion liras from 11 banking groups at an interest rate 25 basis points higher than the interbank rate in November 1995. In March 1996, the Italian Ministry of Finance injected 2 trillion liras of capital into the bank, and in 1997 the bank was completely privatized. The Swedish bank injected a large amount of capital through the government, separated the bad assets of the bank, and then issued new shares by the government to guarantee the increase of bank assets, or sold the "good bank" to the highest bidder through auction. Norges Bank cancelled common shares, issued preference shares to institutional investors, separated bad debts, and sold state-owned shares to the public.

(3) Actively and properly handle non-performing assets. The RTC in the United States has achieved significant results in the treatment of bankrupt financial institutions. For a large number of S & L's non-performing assets, securitization, capital participation, "packaged" sales, and national loan auctions are used. For small amounts of non-performing assets, RTC and private institutions sign agreements. For processing.

Securitization. RTC, with the assistance of investment banks, accounting firms, law firms, securities rating agencies, and other intermediaries, has different types of benign or bad loans such as single-family mortgages, multi-family mortgages, commercial mortgages, commercial loans, and consumer credit. Assets developed and implemented a set of asset securitization plans as the preferred method of selling assets. For benign assets with higher ratings, their interest rates are tens of basis points higher than the cyclical government bond rate, and they are sold based on different term combinations. For the non-performing assets with lower rating, when the securities are issued, the funds equivalent to 20% to 30% of the total securities are injected from the financial allocation or RTC as a reserve for securities repayment to compensate for the losses that may be caused when the securities are issued. RTC has securitized US $ 49 billion of different types of assets.

Capital participation. The capital participation strategy is characterized by a limited liability partnership, which is mainly used to deal with non-performing assets, and later also used to deal with real estate-related assets. In each asset processing contract, RTC becomes a limited partner with assets and shares, and a private agency becomes a general partner through bidding, is responsible for the management or sale of assets, and assumes limited liability with its share capital. The cash flow obtained from asset disposal is after deducting expenses. Distribution between RTC and limited partners in accordance with the agreed equity ratio.

Sell by "bag". RTC first locks up an asset "package" for the creation and issue of medium-term bonds. At the same time, it selects a qualified asset manager from the bidder to act as a shareholder. The shareholder subscribes a maximum of 49% of the shares and is an RTC (the shares owned by it cannot be (Over 51%) managed assets. RTC chooses to sell based on the specific conditions of the asset.

National loan auctions. The auction is conducted by RTC in national sales centers, and the auctions are classified according to the type, amount and location of benign assets and non-performing assets, enabling RTC to sell a large number of similar assets at one time. A total of eight loan auctions were conducted nationwide, selling benign assets with a book value of $ 800 million and non-performing assets with a book value of $ 2.8 billion.

Sign an agreement with a private institution. For small amounts of non-performing assets, RTC can sign standard asset management sale agreements with private institutions, which will manage and dispose of assets in accordance with contracts. In order to shorten the asset disposal time as much as possible, RTC provides financing facilities for the sale of some assets, and the net loss of assets is compensated by the government at its discretion.

In short, although the background of the generation of bad debts of financial institutions in different countries is different. The reasons for the failure of financial institutions are different, and the specific methods for dealing with them are different, but they also have common features: usually the combination of government participation and market operation, and the government plays a leading role; legislation precedes, operates according to law, and promptly investigates and punishes Violations and criminal acts; Establishing a specialized agency to restructure bad debts and deal with financial institutions that have closed down, thereby setting up an effective bridge between monetary assets and physical assets; separating good assets (debts) from bad assets (debts) and operating at a discount Sale in order to digest the bad assets (debts) as quickly as possible; and a large capital injection and full use of national credit to raise funds, especially government bonds and government-guaranteed loans.

The main reasons for the continued failure of the American Savings and Loan Association are:

Losses on loans and securities investments; fraud; liquidity issues, etc.