The $1.1 Trillion Trove

Savings institutions started out in the early 19th century as the mom-and-pop shops of finance. At the time, the Industrial Revolution was spawning an urban working class that had no place to put its savings. Commercial banks were mostly uninterested in small accounts, preferring to deal with businessmen and property owners. As a result, philanthropists set up savings banks for working people. In his book Savings Banking, Franklin Ornstein, chairman of Central Federal Savings in Long Beach, N.Y., traces the origins of the industry to the formation in 1816 of the Philadelphia Saving Fund Society, which was started by 25 individuals who chipped in $10 each to get it going. In the early days, savings banks invested their deposits in Government and state bonds.

In 1831 a different kind of savings institution emerged with the founding of the Oxford-Provident Building Association in Frankford, Pa. This forerunner of the modern savings and loan was created to give loans for home building. Over the years, the two types of thrift institutions -- savings banks and savings and loan associations -- became very similar, and both pursued the same primary goals: catering to small depositors and granting home mortgages. Commercial banks concentrated on business lending and had the legal power to make a broader range of investments, from oil ventures to foreign loans.

In the mid-1960s the U.S. Government helped the thrifts by letting them pay depositors higher interest rates than commercial banks. By 1975 there were 5,407 savings institutions, with deposits of $395 billion. By the end of the '70s, however, they were rocked by high interest rates, which reduced the value of their low-interest mortgage loans. Moreover, the Government removed ceilings on the rates that institutions could pay depositors and thus forced the savings industry into competition with commercial banks. Many savings institutions collapsed or merged with stronger partners. Though the number of thrifts has fallen to 3,746, deposits have continued to grow. They now total about $1.1 trillion in 146 million accounts.

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