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The first loan made by a building and loan association in the U.S. was granted to Comly Rich, a lamplighter and combmaker, in 1831. He received $375 to purchase this home at 4276 Orchard St. in what is now Philadelphia. Library of Congress
"It's a Wonderful Life"

A short history building and loan associations

The Econ Extra Credit Team Dec 9, 2022
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The first loan made by a building and loan association in the U.S. was granted to Comly Rich, a lamplighter and combmaker, in 1831. He received $375 to purchase this home at 4276 Orchard St. in what is now Philadelphia. Library of Congress

George and Mary Bailey are about to leave Bedford Falls for their honeymoon when the unthinkable happens. Their taxi driver points out an apparent “bank run” at the Bailey Bros. Building & Loan Association. Trouble is, the building and loan isn’t a bank. To keep it afloat, George has to convince his friends and neighbors to withdraw only what they need to get by — then pays out of his own pocket. So much for that honeymoon. It’s one of the most iconic scenes in “It’s a Wonderful Life” and worth a close look for econ nerds like us.

The difference between building and loan associations and banks

Building and loan associations were financial institutions, and like banks, they offered loans and savings opportunities. They began as British building societies in the late 18th century, in which individuals pooled their money to finance home loans for members on a rotating basis. Once one member paid off his mortgage, another could secure a loan. 

The original B&Ls disbanded or shut down after all their members had received one home loan, but later models offered new loans to new members on a continuous basis. Many Americans borrowed from B&Ls because national banks weren’t allowed to finance mortgages and state-chartered banks often required down payments of 60% or more. By 1930, B&Ls had 12.3 million members with close to $9 billion in assets, thanks to their more affordable mortgages.

Banks were required to hold customers’ savings in depository accounts. B&Ls, on the other hand, had “members” who owned shares in the association and could borrow money and receive dividends. People who saved with banks had the right to withdraw their deposits at any time. But most B&Ls had waiting periods of 30 to 60 days to withdraw, which gave them more stability during volatile economic times. 

What happened to building and loan associations?  

Many B&Ls supplemented member contributions with short-term lending from banks to fund mortgages. After some 9,000 bank closures in the 1930s, many B&Ls hit a credit crunch and closed. They were likely hurt by the drop in overall housing prices too. 

New regulations enacted in the Great Depression’s wake transformed B&Ls into federally chartered savings and loan associations, which afforded them access to federal deposit insurance but also required them to take in customer deposits for checking and savings accounts. Their services became more comparable to those of credit unions or banks. By law, they were still required to dedicate the majority of their lending to residential properties, a nod to their historical origins. 

By 1980, the country’s thousands of S&Ls provided about half the value of all mortgages in the U.S. But inflation and rising interest rates and drove severe losses in the decade that followed.  Deregulation prompted many insolvent S&Ls, or “zombie thrifts,” to offer higher interest rates to attract depositors and make riskier investments to pay off those promised returns. More than a third of S&Ls failed between 1986 and 1995, cutting off what had been one of the best ways to secure an affordable mortgage.

As of 2020, only a little more than 600 savings and loans were still operating.

How to watch “It’s A Wonderful Life”

“It’s a Wonderful Life” is available to watch with a subscription on Amazon Prime Video, fuboTV and FilmBox . It is also available to rent on several platforms, including YouTube, Apple TV and Vudu. Some library card holders can stream for free on Hoopla and your local library may also have the film to borrow on DVD or VHS. 

Select theaters will also host special screenings of the celebrated film between Dec. 18 and 21.

Is there something you’d like Econ Extra Credit to explore? A question you want answered? Let us know by sending the team an email. We’re at extracredit@marketplace.org.

Check out all our past selected films on our website.

Related links

To learn more about the history of building and loan associations, check out these links: 

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