What Are the Differences Between Commercial Banks & Thrift Institutions?

by Michael Roennevig ; Updated July 27, 2017
Thrift institutions are mutually owned by their customers.

Thrift institutions and commercial banks are different financial entities with different models of funding and reasons for existence. As the modern banking system has matured, the differences between the two models has become more acute. Thrift organizations continue predominantly to supply mortgages to local communities funded by their savings, while commercial banks have diversified into riskier areas of investment but continue to supply loans to businesses.


Thrift institutions are mainly funded by savings deposited by individuals and local businessed for which they are paid interest much like building societies in the U.K. and Australia. They are much smaller than commercial banks, operate locally and do not rely on the money markets or private equity for funding. The money paid in by the local community is loaned in the form of mortgages and personal loans. Commercial banks have been free to behave in much the same way as investment banks since the Glass-Steagall Act of 1932, which no longer required retail banks to be separate from investment banks.


Thrift institutions come in two forms, savings-and-loan associations and savings banks. They are mutually owned by their customers who have voting rights and the ability to influence the financial and managerial direction of the institution as opposed to commercial banks, which are owned by shareholders. Some commercial banks are privately held, but most of the world's largest commercial banks have shares publicly traded on stock exchanges.


Thrift institutions in the U.S. where established in the 1850s under federal control and are more heavily regulated than the commercial banks. They must have at least 65 percent of their lending in consumer mortgages and loans by law and are particularly vulnerable to downturns in the housing market as a consequence. Although thrifts were hit hard during the 2008 banking crisis, they have proved durable as they were not exposed to some of the more exotic debt that commercial banks had on their books at the time of the slump.

About the Author

Michael Roennevig has been a journalist since 2003. He has written on politics, the arts, travel and society for publications such as "The Big Issue" and "Which?" Roennevig holds a Bachelor of Arts in journalism from the Surrey Institute and a postgraduate diploma from the National Council for the Training of Journalists at City College, Brighton.

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