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Introduction
Nonbank financial institutions play a vital role
in the flow of money and credit within the
financial system, especially the home
mortgage market and the market for personal
savings.
Recently however, both bank and nonbank
financial institutions are converging in terms
of the services they offer and the markets they
serve.
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Savings Banks
Savings banks began in Scotland in the early
19th century, and then took root in the U.S.
about 150 years ago to meet the needs of the
small saver.
Like S&Ls, they play an active role in the
residential mortgage market. However, they
are more diversified in their investments,
purchasing corporate bonds and common
stock, making consumer loans, and investing
in commercial mortgages.
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Savings Banks
The number of savings banks operating today
is small at most a few hundred.
They are scattered throughout the U.S., though
they are most prominent in the New England
and the Middle Atlantic states.
The distinction among S&Ls, savings banks,
and commercial banks is becoming blurred,
especially because they are readily convertible
from one form to another.
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Savings Banks
The savings bank industry faces a number of
problems that will significantly affect its
future as a conduit for savings and investment.
In particular, savings banks have inflexible
asset structures and face competition from
other financial institutions.
Their future growth depends on their ability to
gain the necessary changes in government
regulations to allow them to respond to
changing financial market conditions.
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Credit Unions
Credit unions are cooperative, self-help
associations of individuals, and savings
deposits and loans are offered only to members
of each association.
Credit unions came to the U.S. in 1909, and
their long-run survival stems mainly from their
being able to offer low loan rates and high
deposit interest rates and from their relatively
low operating costs.
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Credit Unions
Credit unions are organized around a common
affiliation or bond among their members. Most
members work for the same employer, or for
one of a group of related employers.
There is a strong shift today toward fewer, but
larger, credit unions. The decline is due
primarily to mergers, failures, and a structural
shift in the U.S. economy from manufacturing
industries toward more service industries.
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Credit Unions
U.S. credit unions are under intense pressure
to develop new services and penetrate new
markets due to increasing competition from
other financial institutions and a decline in the
demand for their historically most important
credit service automobile loans.
However, the industry has repeatedly shown
its capacity for service innovation and its
ability to compete successfully for both
consumer loans and savings accounts.
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