What is a stock savings bank?
This is a type of financial institution that allows individuals to place their money under the control of a bank which will then invest it on their behalf and compensate them with interest after an agreed upon amount of time.
Despite their many similarities, a stock savings bank should never be confused with a mutual savings bank because there are a few critical differences between them regarding the question of ownership.
A mutual savings bank is owned communally by each and every individual who has invested their money into the bank as a saving but a stock savings bank is privately owned by an original group of shareholders who initially started the bank.
How stock savings banks make money.
When initially starting out, most stock savings banks operate by having the shareholders decide which types of investments to make on behalf of their savers but as the bank gets bigger it becomes necessary to hire a group of highly skilled professional managers.
These managers will proceed to construct a complex portfolio of assets such as corporate bonds, government treasury bills, real estate holdings as well as investments in more liquid assets such as foreign currency and precious metals.
The primary objective of bank managers is to create a portfolio that provides the highest level of profit while mitigating loss through diversification and calculated risk assessment.
Legal concerns involving stock savings banks.
Stock savings banks often operate with limited liability clauses which means that losses are often shielded from savers to the degree of their investment and even if the bank goes bankrupt their personal assets cannot be taken as collateral.
If the bank engages in illegal activities, savers are not considered liable in any way and it only managers and perhaps the board of directors who often have to face the full force of the law.
After the 2007-2008 financial crisis there was increased mistrust of all financial institutions and `wall-street guys`.
This led many governments around the world to imposed higher levels of oversight and regulation meant to curb managers from taking high risks.
Stock savings banks are not exempt from these new rules that require a higher level of transparency regarding what types of investments they are making.
How shareholders and savers are compensated differently.
Unlike mutual savings banks which distribute all net profits to every saver in proportion to their investment, stock savings banks operate a little differently by distributing the net profits between the original shareholders in form of dividends and savers in form of interest.
The interests and dividends are then taxed according to the regulations imposed by the federal and local governments which often vary from place to place.