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How S&Ls Work


President Bill Clinton considers his words during a 1996 press conference about the Whitewater Savings & Loan scandal.
President Bill Clinton considers his words during a 1996 press conference about the Whitewater Savings & Loan scandal.
Paul J. Richards/AFP/Getty Images

Making the rounds at a cocktail party, you might enter a conversation about the banking industry. Inevitably, someone mentions savings and loan institutions or S&Ls. Sighs and groans abound.

Savings and loan associations, also known as thrift banks (as in thrifty or savings-minded), have a bad rap because of the massive savings and loan crises of the 1980s and 1990s. Hundreds of banks failed during this crisis, costing the federal government and taxpayers billions of dollars. Add this extensive collapse to the widespread allegations and prosecutions of S&L officials for criminal activity, and you had quite the party.

But the history of savings and loans is not just a saga of collapse, failure and crime. These specialized banking institutions go way back to the Old World. And the 1980s crisis didn't wipe S&Ls off the face of the Earth. The thrift industry, though vastly reformed, transformed and reduced during the late 1980s and early 1990s, lives on today.

First, let's take a look at the roots of the savings and loan associations. You may think they came about in the spendthrift era of Wall Street. But the truth is actually closer to Pride and Prejudice. Read on.