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Comment by JumpCrisscross | Hacker News Reader

> I'm struggling to see the substantive difference between an S&L and a credit union

S&Ls focussed on residential mortgages. Credit unions can issue credit cards, business loans, HELOCs, et cetera.

Historically, S&Ls had time deposits/CDs which they used to finance mortgages. Credit unions were like banks, but tied to a group, e.g. a church or fraternal organization. Over time, S&Ls started taking demand deposits and credit unions broadened the definition of a member to the point of meaninglessness.

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Yeah, that's exactly what I'm talking about: "well, substantively they're the same, but, uh, well, S&L's emphasized mortgages more". Um, okay. But, at the end of the day, I'm not seeing the substantive financial relationship I can't have today that I could during the S&L era. Or, by extension, what's so different today, now that that "sector" of finance is gone, as suggested in the original comment[1]. What do I not get as a result of not having lived through that time?[2]

I don't feel like I've learned anything more than a factoid I can repeat now. We "have S&Ls". We "didn't have S&L's" then. Okay. We still put savings in a financial institution. Those FI's still lend the money out. Many are still mutuals.

Aha! But back in the day, you'd have to be a member of a selective organization to be part of a mutual that doesn't all of that!

>Over time, S&Ls started taking demand deposits and credit unions broadened the definition of a member to the point of meaninglessness.

Oh. So not that, either.

I guess I just have different standards for what a meaningful difference looks like?

[1] "Given that this is a financial sector that no longer exists, it's hard for people who weren't around then to understand what a huge deal this was at the time."

https://news.ycombinator.com/item?id=35776271

[2] I mean, I did, but was too young to get what was going on for adults.

S&L were forced to be focused on long-term residential loans and to offer a vulnerable, narrow savings product offering and weren't allowed to significantly diversify with other kinds of lending.

Calling it an emphasis makes it sound like an S&L could've just started looking like any diversified bank to stay alive, but it wasn't an option for them without a change to their regulatory environment--and couldn't have happened quickly enough anyway once the crisis was rolling.

If unchecked, the interest rate changes at the time would've eventually come for all banking, but the damage was limited.

You're actually quite right - fundamentally they were fractional reserve lending institutions. The main difference with banks was somewhat selective membership, and restrictions to loans to their membership to buy property.

What actually killed them was Volker raising interest rates to 18% in a misguided attempt to cause the inflation triggered by the break up of the Bretton Woods accords and the accompanying oil crisis. (That can also be read the other way round as it happens - one of the several things that stressed the fixed rate currency exchange agreement out of existence was the oil trade imbalance and the accompanying flows of dollars. Volker raised interest rates following economic textbook theory to suppress inflation, and it backfired rather spectacularly.

Unlike today - this wasn't strictly a quantitative money inflation (i.e. nobody had just increased the US money supply by 25%), and this is very clear in the M2/M3 figures of that time.

At any rate. Key thing, then and now - the US residential mortgage market is dominated by long term, fixed rate loans. When interest rates rise very quickly, this creates huge issues for the lenders. The S&L's got caught with a lot of low interest rate, fixed rate loans, and couldn't consequently pay their savers enough to keep their deposits. As savers moved deposits into higher rate institutions it pushed the entire S&L (and many banks as well) into difficulty, some compensated for this by making riskier (higher rate) loans, and the whole sector crashed.

One of the unfortunate side effects of this was that it led to Salmon Brothers developing a massive loan securitisation program (to buy the loans from the S&L as a way out, kind of), and that led directly to the Mortgage Backed Security crises of 2000 and 2006. It also somewhat resulted in the South American crisis in the 1980´s since that was another place the US banks went looking for high interest rate loans.

Credit unions used to have extremely tight criteria for membership. You had to be a former or current employee of the company or things of that sort.

If your dad was a member you could start an account, but IIRC not if they were a former employee.

If memory serves loosening the rules on CUs was part of solving the S&L crisis. So BECU (Boeing Employees’ CU) could serve any Washington residents for instance.

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