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8-14 Money, Banking & Financial Institutions [CH 8

for customers who will maintain large account balances, $1,000 or more per month,
and will wave service fees and check charges. For a minimum balance of $1,000 spread
between any two or more accounts (such as checking, savings, money market, CDs,
and IRAs), participants in the ChemPlus package at New York's Chemical Bank get
free checking, a 16.8 percent combined MasterCard and Visa account (free for the first
year), reduced rates on loans and mortgage fees, and free 24-hour banking from their
ATM network around the country. A Chemical Bank official stated "We are devouring
market share with this new product." "New Yorkers are always chasing around to get
that last one-hundredth of a point interest, but we offer them free checking, loads of
convenience, and a guarantee that our rates will always be near the top.''
Commercial banks also provide a wide range of financial services to assist business
engaged in international trade. Wells Fargo and Bank of America offer assistance in
financing trade in a variety of countries for multinational firms. Fees charged for such
services produce substantial earnings for the banks.

Other Financial Institutions

There are other financial institutions that exist as sources and users of funds other
than commercial banks. The U.S. financial system is categorized into two broad
groups: deposit institutions and non-deposit institutions.

Deposit Institutions
Savings and loan associations, savings banks, and credit unions, in addition to

commercial banks, are considered deposit institutions because they accept deposits
from customers and provide some form of checking account. While each of these
institutions has traditionally served specific financial needs of individuals and
businesses, deregulation has blurred the distinctions among them. For example, at one

time only commercial banks offered checking accounts. However, savings and loan
associations and savings banks currently offer interest-paying NOW accounts. Credit
unions offer their own variant in the form of share draft accounts. Although savings
and loan associations and savings banks have traditionally served as sources of home

mortgages, many commercial banks now compete in the home mortgage market. All of
these institutions compete by offering passbook accounts, time deposits, traveler's
checks, and a variety of other banking services with competitive rates.

Savings and Loan Associations and Savings Banks. A savings and loan
association (S&L) is a financial institution offering both savings and checking
accounts and using most of its funds to make home mortgage loans. Their original

purpose was to encourage family thrift and home ownership, and for years, S&Ls were
permitted to pay slightly higher interest rates to savers than could commercial banks.
Deposited funds were then used to make long-term, fixed-rate mortgages at prevailing
mortgage rates. There were 691 savings and loan companies insured by the FDIC as of

the end of 2018. These companies are incorporated under either state or federal
regulations and must use the word “state” chartered when organized under state
regulations and “federal” in their names when organized under federal regulation.
savings and loan Savings banks, also known as mutual savings banks, are virtually identical to
association (S&L)
Financial institution offering S&Ls. Their origins can be traced to the early 1800s in Boston and Philadelphia, where
savings and checking they were established to provide interest on savings accounts. The early U.S. banks did
accounts and using most of not provide such accounts, and the first savings banks were designed to meet the
its funds to make home savings and borrowing needs of individual households. Their early missions are
mortgage loans; also called
thrift institution. suggested by such names as Emigrant Savings Bank, Dime Savings Bank, and
Seaman’s Bank for Savings.
Savings banks operate much like S&Ls in offering NOW accounts and other
savings accounts and in making home mortgage loans, and they have faced similar

savings banks competitive pressures. Like the S&Ls, they are now permitted to make consumer and
State-chartered banks some business loans. To gain competitive advantages in loan production, Great
with operations similar to American First Savings Bank, headquartered in San Diego, California, is developing
savings and loan new products and promotional strategies for its banking offices in California, Arizona,
associations.
Washington, Colorado, and Montana. An aggressive promotional effort, including
advertisements such as the one in Figure 8.5, is helping Great American increase its

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