Difference Between Bank and Thrift

Financial institutions play a crucial role in the economic stability of an economy. A bank and a thrift are two financial institutions that play an important role in satisfying the needs of consumers as well as business enterprises.

However, there are considerable differences between a bank and a thrift.

Bank vs Thrift 

The main difference between bank and thrift is that Banks serve the needs of both businesses and consumers. On the other hand, thrifts provide services to only consumers and not businesses. The federal or the state government issues a charter in the case of banks. In contrast, the  financial regulatory division of the state government or the federal office of thrift supervision issues a charter in the case of thrift.

Bank vs Thrift

A bank refers to a financial institution that plays the twin function of advancing loans and accepting deposits. There are two types of banks in almost every country: central bank and commercial banks.

Risks faced by banks include liquidity crunch, market risk, credit risk, liquidity risk, macroeconomic risk, operational risk, and reputational risk.

Thrift refers to a financial institution that derives a large proportion of its deposits from the savings of the public. There are multi-facet cooperative banking models offered by thrift.

The portfolio of thrift banks need to com[rise of at least 65% of consumer loans. Thrift banks came into existence in the early 18th century in the United Kingdom.

Comparison Table Between Bank and Thrift 

Parameters of ComparisonBankThrift
Target Groups Banks serve the needs of both businesses and consumers.Thrifts provide services to only consumers and not businesses. 
Services Banks offer comparatively more services and facilities as compared to thrift banks.Thrift banks offer only a limited range of services and accounts to consumers. 
Charter The federal or the state government issues a charter in the case of banks. The financial regulatory division of state government or the federal office of thrift supervision issues a charter in the case of thrift.
Liquidity Banks possess low liquidity to provide consumers with home mortgage loans.Thrift banks possess high liquidity to provide consumers with home mortgage loans. 
Regulation Banks are less regulated as compared to thrifts.Thrifts experience more regulation in comparison to banks. 

What is a Bank?

A bank refers to a financial institution that plays the twin function of advancing loans and accepting deposits. Banks play an indispensable role in the economic stability and growth in a country.

In addition, banks advance loans either directly or indirectly through capital markets. Banks are usually regulated by higher authorities.

There are two types of banks in almost every country: central bank and commercial banks. The central bank of India is called the Reserve Bank of India.

Other central banks include the Reserve Bank of England and the federal reserve system. Several commercial banks include State Bank of India, Punjab National Bank and HDFC Bank.

Some methods include transaction fees, interest, and financial advice. However, the most significant method of revenue generation is the interest charged on the loans or deposits kept by the public in banks.

There are several retail provisions provided by banks. Some of these include credit card, debit card, mortgage, personal loan, demand deposits, ATM, NEFT and RTGs.

Risks faced by banks include liquidity crunch, market risk, credit risk, liquidity risk, macroeconomic risk, operational risk, and reputational risk. To conclude, banks offer varying provisions to the consumers.

What is Thrift?

Thrift refers to a financial institution that derives a large proportion of its deposits from the savings of the public.

There are multi-facet cooperative banking models offered by thrift. Some of the examples include savings and loan association, mutual savings bank, and credit union. Thrifts offer wider savings facilities but limited lending services.

There are several facilities provided by thrift banks. The services include traditional savings account, checking accounts, home loan origination, personal and car loans, and credit cards for customers.

In addition, it also provides home mortgages for the general public. Thrift banks came into existence in the early 18th century in the United Kingdom.

A thrift bank is identical to corporate firms wherein the shareholders have the primary ownership. The size of thrift banks is relatively small. The main objective of thrift banks is to provide a wide plethora of services to the consumers in the market.

Over the years, thrift banks have undergone several structural changes bridging the gap between conventional banks and financial institutions.

Thrift banks are allowed to give 20% of their assets in the form of commercial loans to potential consumers. The portfolio of thrift banks need to com[rise of at least 65% of consumer loans.

In addition, thrift banks are provided with low cost funding. Thrift banks also impart loans at relatively low rates of interest.

Main Differences Between Bank and Thrift 

  1. Banks serve the needs of both businesses and consumers. On the other hand, thrifts provide services to only consumers and not businesses.
  2. The federal or the state government issues a charter in the case of banks. In contrast, the  financial regulatory division of the state government or the federal office of thrift supervision issues a charter in the case of thrift.
  3. Banks offer comparatively more services and facilities as compared to thrift banks. On the other hand, thrift banks offer only a limited range of services and accounts to consumers.
  4. Banks possess low liquidity to provide consumers with home mortgage loans as compared to thrifts.
  5. Banks are less regulated as compared to thrifts.
Difference Between Bank and Thrift

Conclusion

Thus, a bank and thrift bank vary on several grounds. There are several ways of revenue generation by banks. Some methods include transaction fees, interest, and financial advice.

In contrast, thrifts provide a wide plethora of services to the consumers in the market. Thrifts experience more regulation in comparison to banks.

There are several retail provisions provided by banks. Some of these include credit card, debit card, mortgage, personal loan, demand deposits, ATM, NEFT and RTGs. On the other hand, thrifts provide a limited range of services to consumers. To conclude, there are considerable differences between a bank and a thrift institution. 

References

  1. http://www.differencebetween.net/business/difference-between-bank-and-thrift/#:~:text=Conventional%20banks%20offer%20services%20to,portfolio%20consisting%20of%20consumer%20loans
  2. https://www.bankrate.com/banking/thrifts-vs-traditional-banks-whats-the-difference/ 
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