A mutual bank is a community bank, located primarily in the northeastern United States, that is owned either by its depositors or shareholders. The mutual bank is also operated for the benefit of its depositors or shareholders. It is a small, conservative financial institution that is an alternative to large, regional banking institutions.
Goals and Ownership Structure of the Mutual Bank
The mutual bank, first developed in the early 1800's, were designed to stimulate savings by individuals. The mutual bank accepts deposits and, in turn, loans out money to its depositors, usually in the form of mortgage loans. Since the mutual bank is owned by its depositors and not stockholders like large, commercial banks, it generally makes conservative investments, such as safe mortgage loans and pays market rates of interest on its depositors' money.
The primary goals of the mutual bank have generally been security and conservatism. Today, many mutual banks have been converted to stock ownership from depositor ownership.
History of the Mutual Bank
The mutual bank was first developed in Europe in the early 1800's. It was formed by philanthropists in order to teach individuals how to be thrifty and save their money. The trend continued to the United States and the first mutual bank was formed in Boston in 1816 for the same reason. The state charter granted the first mutual bank in Boston was the first government legislation passed to safeguard mutual savings banks.
Mutual banks ran into some trouble in the 1980's. They had gotten along just fine paying out low rates of interest on their deposits and loaning money for mortgage loans at fixed rates of interest until banking deregulation came along in the early 1980's. Mutual banks had approximately 66% of their loan portfolios tied up in fixed-rate mortgage loans. Suddenly, they had to begin paying market interest rates, which were high at the time, on their deposits. That created quite an interest rate gap between what they were paying out and what they were taking in.
In the 1980s and 1990s, about 30% of the mutual banks converted to stock ownership and many failed altogether. Those that survived have returned to profitability and have become successful community-based lending institutions that serve as an alternative to the large, regional banks.
If you live in an area where there is a mutual bank, explore it as a possible resource for your lending needs.
