Mutual Banks and Stock Banks

Abstract

MUTUAL associations are something of an oddity in a capitalist economy, but they have long been significant in banking in the United States.1 Mutual savings banks, credit unions, and most savings and loans are mutual associations, while national banks, state banks, trust companies, and some savings and loans are stock companies.2 I will refer to the two categories as mutual banks and stock banks. The difference between mutual and stock banks lies in who controls the bank and receives the profits. A stock company is by stockholders, who vote for the firm's managers, distribute its profits, and are free to sell their privileges. Depositors are merely customers. A mutual association is owned by its depositors but not controlled by them. As I discuss below, the managers are effectively self-controlling, limited only by government intervention. In savings and loan associations (hereafter called S&Ls) and credit unions, each depositor has the rarely exercised right to vote for the managers of the bank. In mutual savings banks, authorized in only seventeen states (including the New England states and New York), the depositors lack even the fiction of control since they lack the right to