Commercial Banks vs. Savings & Loans

Savings and loan associations and commercial banks both provide basic banking services to customers, including check writing, debit cards, and loans and deposits. However, commercial banks typically service larger customers than savings and loan associations, and they tend to work more with businesses than with individuals. As the two types of banks service customers with different needs, they are regulated by two different federal regulatory agencies.

Regardless of the specific agency involved, the job of any banking regulator is to ensure that banks are financially sound and acting in compliance with laws designed to protect customers. Specifically, banks must meet certain minimum capital requirements to remain in operation and cannot defraud or otherwise violate the public trust.

The Office of the Comptroller of the Currency (OCC) is responsible for safeguarding and monitoring all nationally chartered commercial banks, while the Office of Thrift Supervision (OTS) oversees all savings and loan associations. The two regulators are similar in function and responsibility, but the OCC has a broader mandate.

Commercial banks and savings and loan associations are most similar in terms of the basic banking services they provide. Both types of institutions accept deposits from investors in exchange for a promise of safekeeping and, usually, an interest payment. From these deposits, both types of banks make loans, which are funds provided to investors in exchange for the promise of repayment of principal with interest. One of the primary sources of revenue for all banking institutions is the interest spread between the rate they collect on loans and the rate they pay on deposits.

According to the OTS, savings and loans are required by charter to have at least 70 percent of their assets in residential mortgages and mortgage securities. What this means is that a savings and loan institution must focus on local and regional business, rather than national or international clients. The entire reason for the development of a savings and loan industry, also known as the thrift industry, was to help provide loans to residential customers, thus the entire business line of most savings and loan associations is tailored to the needs of local customers.

Unlike a savings and loan, a commercial bank is typically a large, multi-national corporation that focuses on business loans and services, such as construction or expansion loans, rather than on residential mortgage loans. Additionally, large commercial banks are more likely to offer unsecured loans, such as credit cards, than savings and loan associations. While commercial banks are allowed to offer residential mortgages, they tend to focus more on the needs of regional, national and international businesses.