U.S. Business: The Twelvefold Increase

SAVINGS & LOAN

When the first U.S. savings and loan association was founded in Frankford, Pa. in 1831, its strait-laced directors levied stiff fines on members who got drunk at meetings. Today's savings and loan associations have a somewhat different problem: they have grown almost too fast for their own good. The industry's 6,277 associations in 50 states serve 35.5 million U.S. savers (average account: $2,499) and make 46% of all home-mortgage loans in the U.S., nearly three times the number made by commercial banks. Next month the total assets of the industry will for the first time climb over the $100 billion mark—a twelvefold increase since World War II.

Haughty Turndown. The savings and loan industry started as a sort of social protest movement among low-paid people who pooled their resources to finance one another's homes after the banks of the day turned them away. It remained a relatively small part of the U.S. financial world until the postwar housing boom came along, turning a nation in which the majority of families had been tenants into one in which two-thirds of all families are homeowners. Since then, S & Ls have prospered most where homes are going up the fastest. Four of the five largest associations are in Los Angeles, Pennsylvania, where it all began, has the most associations (798), followed by Illinois (598), Ohio (571), Maryland (419), New Jersey (410), and California (263).

Savings and loan associations are now run by professionals who make all the decisions, though most of them are still legally mutual associations. S & Ls have an advantage over banks in making home loans because they can lend up to 90% of the cost of a house with 30 years to pay, while banks are limited by Federal Reserve Board flat to 75% and 20 years. But in the past two years, the bankers and S & Ls have been hammering away at each other in an interest-rate war that has skyrocketed rates on savings deposits. With the mortgage market beginning to soften, this means a smaller spread between what S & Ls pay out in interest and recieve in mortgage rates.

Expanding Horizons. The S & Ls have an even more pressing problem. Their hard sell has been so effective that they pulled in $6 billion in new savings in the year's first half—and are having trouble finding enough borrowers to put it to work. S & L spokesmen will go to washington after Labor Day to try to persuade Congress to broaden their lending powers, an aim for which they already have the enthusiastic backing of Chairman Joseph Patrick McMurray of the Federal Home Loan Bank Board, Set up by Congress in 1932 to provide emergency credit for S & Ls, the three-man board requires member banks to maintain reserves equal to 7% of their savings accounts, but lacks the flexible control over interest rates and reserve levels that makes the Federal Reserve Board such a potent force in the economy.