Depository institutions (for simplicity, we refer to these as banks throughout this text) are financial intermediaries that accept deposits from individuals and institutions and make loans. The study of money and banking focuses special attention on this group of financial institutions, because they are involved in the creation of deposits, animportant component of the money supply. These institutions include commercial banks and the so-called thrift institutions (thrifts): savings and loan associations, mutual savings banks, and credit unions.
Commercial Banks. These financial intermediaries raise funds primarily by issuing checkable deposits (deposits on which checks can be written), savings deposits (deposits that are payable on demand but do not allow their owner to write checks), and time deposits (deposits with fixed terms to maturity). They then use these funds to make commercial, consumer, and mortgage loans and to buy U.S. government securities and municipal bonds. There are slightly fewer than 8,000 commercial banks in the United States, and as a group, they are the largest financial intermediary and have the most diversified portfolios (collections) of assets.
Savings and Loan Associations (S&Ls) and Mutual Savings Banks. These depository institutions, of which there are approximately 1,500, obtain funds primarily through savings deposits (often called shares) and time and checkable deposits. In the past, these institutions were constrained in their activities and mostly made mortgage loans for residential housing. Over time, these restrictions have been loosened so that the distinction between these depository institutions and commercial banks has blurred. These intermediaries have become more alike and are now more competitive with each other. Credit Unions.
These financial institutions, numbering about 9,500, are very small cooperative lending institutions organized around a particular group: union members, employees of a particular firm, and so forth. They acquire funds from deposits called shares and primarily make consumer loans.
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