Unitary Thrift: What Thrifts Are and How They Work

What is a thrift?

A thrift (often called a savings and loan association or savings bank) is a depository institution that specializes in consumer savings and real‑estate lending. The term is sometimes used broadly to include mutual savings banks and institutions with a member‑focused structure. Thrifts traditionally emphasize helping members grow savings and finance home purchases.

How thrifts operate

• Take deposits (savings accounts, time deposits) and make loans—especially residential mortgages and other housing‑related lending.
• Historically focused on holding loans on their balance sheet rather than securitizing them, which can allow more flexibility for borrowers with nonstandard profiles.
• Are required to be members of the Federal Home Loan Bank (FHLB) System, which gives access to wholesale funding.
• Receive deposit insurance from the FDIC, like commercial banks.

Over the past few decades, many thrifts have broadened their product offerings to include the same checking, loan, and investment products commonly available from commercial banks and credit unions.

Qualified Thrift Lender (QTL) rule

Thrifts have a charter mandate to concentrate on housing‑related assets. The Qualified Thrift Lender (QTL) test measures compliance with that mandate; originally the threshold was at least 65% of assets in housing‑related lending. Passing the QTL test allows thrifts to borrow from the FHLB System, which can translate into competitive funding costs and potentially higher interest paid to depositors.

How thrifts differ from commercial banks

• Purpose: Commercial banks are typically shareholder‑driven and profit‑oriented; thrifts historically emphasize serving members and housing finance.
• Specialization: Thrifts specialize in mortgages and real estate lending; commercial banks have no specific asset class mandate.
• Charters and regulation: Both can be state‑ or federally chartered. Commercial banks are overseen by federal and state regulators and are part of the Federal Reserve System; thrifts also fall under federal or state oversight but maintain the QTL housing focus and FHLB membership.
• Lending approach: Thrifts are more likely to retain loans, which can benefit borrowers who don’t meet agency mortgage standards.

Why choose a thrift?

• Potentially higher deposit rates due to access to FHLB funding.
• Greater flexibility for certain mortgage borrowers because thrifts may hold and service loans rather than securitize them.
• Local decision‑making at community thrifts can help borrowers with atypical income or credit profiles.

Key takeaways

• Thrifts are depository institutions that specialize in savings and housing finance.
• They differ from commercial banks by focusing on mortgage and real‑estate lending and by a member‑oriented tradition.
• The QTL test and FHLB membership are central to a thrift’s business model and funding advantages.
• Many thrifts now offer the full range of retail banking services while retaining strengths in local mortgage lending.