When choosing a financial institution, you may decide to go with whatever option is close to your home or most conveniently located. Did you know that each bank is different and that a savings and loan is not the same thing as a commercial bank?
According to Zack’s, the main difference between a savings and loan and a commercial bank is the intended purpose of each and the products they offer.
Savings and Loan
The aim of these financial institutions is to provide mortgage loans and savings accounts. At the time of their origination, commercial banks did not provide mortgage loans, so they served a specific need.
There was a period during the 1980s and 1990s when savings and loan institutions underwent some issues as mismanagement was a huge problem. Many of them closed as a result, and this led to some mistrust of these banks.
The owners of savings and loan banks are either shareholders or the people who do business with the institution. They must follow specific asset management restrictions as a result of ownership. They have a limit of 20% on how much of their assets they may lend out to customers in commercial loans. They may lend 50% to businesses. They need to keep 65% at minimum invested in consumer products and mortgages.
The original purpose of a commercial bank was to serve as a credit agency and financial institution for businesses. They are for-profit businesses with ownership in the form of stocks bought by shareholders. The management is through a board of directors.
This type of bank does not have the financial restrictions of a savings and loan. It can manage its money how it wants.