Office of Thrift Supervision (OTS) Definition and History

The Office of Thrift Supervision was a bureau of the U.S. Treasury Department that oversaw savings and loan institutions in the country. Established in 1989 to regulate savings institutions, the OTS enforced rules to ensure the safe and sound operation of thrift institutions. Due to the savings and loan crisis in the 1970s, the OTS was established to implement stricter regulations and close down troubled institutions. In 2011, the OTS merged with several other agencies.

Basics

The Office of Thrift Supervision (OTS) was a bureau of the U.S. Treasury Department that regulated and oversaw the savings and loan industry in the country. Its primary responsibility was to safeguard deposits in thrift banks by conducting audits and inspections to ensure compliance with government regulations and policies. However, in 2011, the OTS merged with several other agencies, including the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board of Governors, and the Consumer Financial Protection Bureau (CFPB).

How Does the OTS Work?

History and Purpose

The OTS was established due to the savings and loan (S&L) crisis in the 1970s. During this time, depositors withdrew funds from S&L institutions and invested them in money market funds due to unstable interest rates. To stay afloat, S&Ls engaged in risky practices like commercial real estate lending and junk bond investments. The Federal Savings and Loan Insurance Corporation (FSLIC) insured these deposits, encouraging depositors to continue investing in risky ventures.

The FSLIC's insolvency led to a $124 billion bailout of junk bond investments and the closure of over 700 S&Ls by the Resolution Trust Corporation. In response, the OTS implemented stricter regulations and closed down troubled institutions. The number of thrift banks significantly decreased over the years, from around 4,000 in the 1980s to fewer than 1,000 in 2018.

Regulation and Oversight

The OTS was created in 1989 to regulate savings institutions under the Savings Association Insurance Fund (SAIF). It replaced the Federal Home Loan Bank Board and issued federal charters for savings and loan associations and savings banks. The OTS enforced rules to ensure the safe and sound operation of thrift institutions.

Thrifts

Thrifts include savings and loan associations, credit unions, and mutual savings banks that offer saving and loan services. Unlike commercial banks, thrifts can borrow from the Federal Home Loan Bank System, allowing them to offer higher interest rates to members. Thrifts are required to focus on housing-related assets and must be members of the Federal Home Loan Bank System according to their charter.

Conclusion

The Office of Thrift Supervision was a regulatory agency that oversaw savings banks and other thrift institutions in the United States. Its primary responsibility was to safeguard deposits in thrift banks by conducting audits and inspections to ensure compliance with government regulations and policies. Due to the savings and loan crisis in the 1970s, the OTS was established to implement stricter regulations and close down troubled institutions. In 2011, the OTS merged with several other agencies.