Unitary Thrift

What Is a Unitary Thrift?

A unitary thrift is a chartered holding company that controls a single thrift entity. Historically, unitary thrifts could engage in a broader range of activities than bank holding companies, however, they have come under increasing restrictions since the 2008 financial crisis.

Understanding a Unitary Thrift

Unitary thrifts, also known as savings and loan holding companies, or SLHCs, are a type of holding company that mainly holds assets in thrift investments. Thrift institutions, also known as savings and loan associations, offer a narrower range of products than other financial institutions.

Unitary thrifts focus on customer and community service, which typically means they deal with traditional basic banking products, such as savings and checking accounts, home loans, personal loans, automobile loans, and credit cards.

These thrifts are more limited in these areas, such as providing loans for single-family homes as opposed to larger real estate ventures. Similarly, they focus on individuals and have only limited dealings with businesses. Thrifts are required by law to maintain 65% of their portfolio in assets related to housing or other qualified assets while they are only allowed to have 10% of assets in commercial loans.

Thrifts have traditionally catered towards the middle- and working-class and offer higher interest rates on savings than larger, national banks. The reason they can offer better rates is because that they can borrow at lower rates from the Federal Home Loan Banking System.

Savings and Loan Ownership Structures

Unitary thrifts represent one of the two ownership models for savings and loan companies. Unitary thrifts offer a small group of investors a way of controlling a savings and loan through the purchase of stock in the holding company that owns the thrift.

Due to the liberalization of lender tests, a variety of financial institutions are able to own depository institutions. These include insurance companies and commercial companies. These entities can buy thrifts, becoming a holding company, and the owners of these companies gain exposure to the thrift.

The other ownership model is a mutual ownership structure, where depositors and borrowers receive part ownership of the savings and loans when they engage in business with the company.

Regulatory History of Unitary Thrifts

Because thrifts tended to serve customer needs rather than investor desires, they initially operated under less regulatory oversight, and prior regulatory regimes allowed unitary thrifts to open branches anywhere in the United States.

Savings and Loan Crisis

In the 1980s, the savings and loan industry underwent a crisis after thrifts engaged in risky financial activities in an attempt to cover losses caused by depositors who moved their cash from thrifts to money market funds as interest rates boomed in the late 1970s.

By 1989, much of the industry had collapsed after failed thrifts caused the insolvency of the Federal Savings and Loan Insurance Corporation (FSLIC), which insured deposits.

The Financial Services Modernization Act of 1999, also known as the Gramm Leach Bliley Act, forbade the Office of Thrift Supervision (OTS) from accepting any new applications for unitary thrifts. Since that time, the federal government has increased restrictions on the remaining unitary thrifts.

2008 Financial Crisis

After the 2008 financial crisis, sweeping regulation was made across the financial industry. The passage of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 eliminated the OTS in 2011, which suffered from implications of wrongdoing in the collapse of IndyMac and the failure of AIG during the 2008 financial crisis.

Dodd-Frank passed supervision of legacy unitary thrifts to other federal agencies and the goal was that savings and loan holding companies (SLHCs) would be treated almost like bank holding companies (BHCs) with only a few distinctions. This would allow for more oversight over thrifts.

Much of the legislation impacted controlling and non-controlling ownership of thrift holding companies, the composition of capital, an introduction of new capital ratios, as well as new liquidity ratios. There are also other criteria, such as being "well-managed" and "well-capitalized."