What’s the difference between a mutual savings bank and mutual holding company?

Ask an Economist

My bank wants to reorganize from a mutual savings bank to a mutual holding company. They have sent me a number of promotional items urging me to vote in favor of this reorganization, but I can’t figure out why I would or wouldn’t vote for this. What’s the difference? What are the pros and cons?


A mutual savings bank (MSB) is a chartered financial intermediary that operates as an association of individuals who are depositors, also known as members.  MSBs are owned by their depositors, not stockholders, and this means that an MSB’s profits are distributed to the depositors, typically in the form of higher rates on deposits and lower borrowing rates.  This is in contrast to a traditional bank whose profits go to stockholders, or investors who may have no deposits in the MSB.  An MSB naturally takes a local focus in its strategic direction and prioritizing its depositors’ security by investing in relatively conservative and longer-term investments, like mortgages. 

A mutual holding company results from the conversion of a mutual institution—such as an MSB, mutual savings and loan institution, or mutual insurance company—into a parent company of a subsidiary stock company.  As a result of the conversion—referred to as mutual-to-stock conversion—the parent company (the mutual institution) owns a portion of the subsidiary stock company, and the subsidiary stock company receives all of the assets and liabilities of the original mutual company.  For owners of the original mutual company—members who before the conversion retained ownership and sometimes governance of the mutual—it means the termination of the prior-held mutual rights in exchange for the option to ownership in stock form. 

As part of the conversion, the mutual holding company may undergo an initial public offering (IPO) where members of the original mutual company are given an opportunity to purchase shares of the new mutual holding company.  A mutual institution such as an MSB may pursue this strategy to, among other reasons, access additional investment capital, expand operations, or be able to attract employees through stock benefits. 

The pros and cons of conversion are individual- and case-specific and depend on the conversion process and how the resulting company are structured, owned, and controlled.  As a member of an MSB contemplating conversion to a stock company, there are important questions related to ownership, governance, and relative expected returns that you may want answered.  A few of the major considerations are:

  • What share of the subsidiary company will the new mutual holding company own after conversion?  It is common for the mutual holding company to retain majority ownership in the newly formed subsidiary, but if there are several institutions involved, it may not.
  • How will governance of the mutual holding company and subsidiary work after the conversion?  As a member-owner of an MSB, you may have governance rights—the ability to direct the strategic direction of the MSB—that you forfeit in the conversion process.  A related question is the governance structure of the subsidiary institution.
  • Will there be an IPO, and if so, what consideration will MSB members be given to participate?   Perhaps the ability to participate in an IPO or stock offering is an attractive offer that outweighs some of the conversion costs or losses to members.  State and federal banking regulations govern conversion and have specific requirements regarding the priority of depositors of the MSB in the IPO phase.  As a depositor, you should seek to understand your rights in the IPO process.
  • Are the assets of the MSB that will be transferred to the mutual holding company ones that members have a residual claim to, and thus will lose as a result of the conversion?  Members of an MSB benefit from its profitability.  After conversion, members may not retain this benefit unless they purchase stock in the mutual holding company.  How will residual claims to profits be distributed, if at all, to the original MSB members?  Will the benefits as a stockholder, if you become one, outweigh the existing benefits MSB depositors receive?  In stock companies, profitability is allocated to shareholders in proportion to the total amount of stock held, and this is in contrast to an MSB, where profits are allocated to depositors based on how much business they conduct with the MSB (through deposits and loans).
  • What are the reasons for the conversion?  Knowing the reason for the conversion will provide insight into the future direction or strategy of the mutual holding company.  For example, if conversion is being pursued to avoid anticipated losses in the future due to expected financial market changes, perhaps conversion to a mutual holding company is expected to result in greater financial returns relative to being a mutual savings bank member.  Again, who these returns flow to is an issue you want to understand.


There are a number of online resources, including opinions about mutual-to-stock conversions based on individuals’ experiences in the process.  A quick search of “mutual holding company conversion” or “mutual to stock conversion” will reveal these.   These may provide useful insight, but keep in mind that the experiences of any one individual will be different based on the circumstances and structure of the conversion.  Getting answers to the questions above will help individual depositors in a mutual institution determine whether the conversion and resulting company will continue to meet their needs as a depositor or investor.

Last updated on December 14, 2021