Savings and Loans

Definition: Savings and Loans (S&L's) are specialized banks created to promote affordable homeownership. After World War II, the government helped build the Savings and Loans industry by insuring deposits on savings accounts. This encouraged people to save their money, despite federally-regulated low interest rates.

These funds were used by Savings and Loans to lend through 30-year mortgages. Despite higher interest rates, the length of the loans allowed homeowners to afford the monthly payment.

Throughout the 60's and 70's, most homebuyers got their mortgages through Savings and Loans. However, high interest rates in the '70's, and the popularity of money market accounts in the '80's, greatly reduced the attractiveness of savings accounts. This eroded the capital that Savings and Loans needed to create new mortgages.

In response to industry pressure, Congress relaxed restrictions on Savings and Loans' activities, allowing these banks to invest in risky commercial ventures. The collapse of these investments led to the Savings and Loans Crisis of the 1980's.