Readings in Money and Banking Part 27

But, however this may be, the mutual savings bank is a product of the East and promises to remain so in spite of the fact that some of the Western states have very good, if not excellent, savings bank laws.

The distinguishing characteristic of the trustee savings bank is _mutuality_. _All_ the earnings of the bank, less reasonable administrative expenses and the apportionment to surplus or guaranty fund, are divided among the depositors in the form of interest.

One or two features of the mutual bank may be mentioned. First, the investments of such inst.i.tutions are usually carefully restricted, looking primarily to the element of safety; and as long as the trustees keep their funds so invested they cannot be held, either in law or morals, responsible for losses. Second, the predominancy of the mortgage loan. The nature of the deposits being more or less permanent, investments of a permanent character may be made without fear of a sudden demand for their return on the part of depositors; and to safeguard the banks from such unexpected calls, quite generally trustee banks are permitted by law to require notice, the usual time being either sixty or ninety days. The third distinguishing feature is the self-perpetuation of the board of managers. No amount of money can _buy_ a man's way into a mutual savings bank. He cannot, as in stock concerns, buy enough stock to _vote himself_ into office--he can only gain office as the other men advocate his cause. And, on the contrary, he cannot be voted _out_ of office. Only an act, such as bankruptcy (which voids his office), can affect him, and, like a Supreme Court judge, he is appointed during good behavior.

The greatest weakness of the trustee bank is this: Lacking the "essential element" that prompts men to undertake such ventures (profit), it does not appeal to the average man of means unless he is sentimentally inclined; and not being indispensable to trade and commerce, like a bank of discount, it does not come to be a commercial necessity. Even in a great State like New York we find twenty-eight counties with no savings banks. And in many of these counties there are large and thriving towns and cities. Thus the city of Jamestown, with over 30,000 population, has no savings banks; while Elmira, with over 35,000 population, has but one, and that with but half a million a.s.sets.

From the viewpoint of intensive results, as tested by the volume of patronage accorded these inst.i.tutions, a perusal of the statistics will demonstrate that in some places the trustee bank has had a remarkable record. For instance, in Maine, a spa.r.s.ely-settled State, and largely of a rural nature, we find one savings account to every 3 of the population. More remarkable is Vermont, the "Green Mountain State,"

where natural conditions would seem to be much more hostile to such development, we find 30 per cent. of the population having savings bank accounts. New Hampshire has an account for every 2-1/2 of the population, while Ma.s.sachusetts heads the list, with seventy-five out of every hundred. New York has one to every three.

"In seeking an explanation of this remarkable success of the trustee system," says Hamilton, "we are reminded that New England is singularly separate and distinct in its customs, habits and ideals from the rest of the country. Notwithstanding the large foreign population, the dominant type is more h.o.m.ogeneous and more Anglo-Saxon than it is in any other section, and therefore fixed customs have been more rigid and controlling. Among the ideals behind the customs and inst.i.tutions must be noted a stern, Puritanical sense of simple living, industry and providence, and this spirit is so strong as to be well calculated to give color and direction to the philanthropic impulse. There is also an unusual amount of public spirit, of collective rather than a neighborly character, as seen in the inst.i.tution of the town meeting."

STOCK SAVINGS BANKS

The stock savings bank, where it is a savings bank, and not a bank of discount under a savings t.i.tle, differs in no essential degree from the mutual inst.i.tution. The mutual bank belongs to the depositors; the stock bank to the stockholders. The mutual bank pays dividends to depositors only; the stock bank pays dividends to both stockholders and depositors.

The stock bank does not pretend to be philanthropic in its management.

It is purely a business proposition, and where the investments are of the accepted savings bank type, it can justly claim to be on a par with its mutual friends, provided, of course, that it measures up to the standard in its management.

As is implied in the term "stock," it issues capital shares and pays dividends thereon. It has, therefore, the added protection of the stockholder's liability, which, together with the acc.u.mulated surplus, affords the element of strength so necessary in all financial concerns.

It usually pays the depositors a stipulated rate of interest, and the profits beyond this belong to and are distributed to the stockholders as dividends. The partnership idea is entirely lacking, and the depositors get what they bargain for, while the surplus goes to those who invest, not necessarily their savings, but their _capital_, and a.s.sume all risks of the business. It could not in law or equity "scale down" its deposits to make good any losses--a feature peculiar to the mutual inst.i.tution.

In this respect one thing is certain: In so far as safety is concerned, especially in a young bank, the stock bank with the stockholders'

liability is surely superior to the mutual, unless the trustees of the latter are of such high order and of such financial worth as to be able and _willing_ to a.s.sume the burden of any losses that may accrue until the surplus or guaranty fund affords ample protection. This was the trouble in the early days of the mutual savings banks in England.

GUARANTY SAVINGS BANKS

New Hampshire is the only state in which "guaranty savings banks" are found. These are a combination of mutual and stock--a cross between the two. They do not transact a commercial business, being strictly savings banks in their functions, yet having "special deposits," which to all intents and purposes are capital stock. "The guaranty savings bank differs from the ordinary mutual savings bank in that it has capital stock or _special deposits_, as they are called. It pays a certain stipulated rate of interest to its _general_ depositors and _any surplus of earnings above this dividend is available for dividends on the capital stock or special deposits. These special deposits const.i.tute a guaranty fund for the general depositors, and the charter ordinarily stipulates that the special deposits shall always equal 10 per cent. of the deposits._"

Such inst.i.tutions are savings banks in every sense of the word, but the strictly mutual feature is lacking in the specialising of part of the deposits and paying a higher rate of interest on these deposits. In New York State savings banks cannot take a "special deposit," but in New Hampshire, in return for the higher interest rate, the special depositors a.s.sume all the risk of loss or depreciation, and, as in the case of stock concerns, they would be the first to suffer in the event of insolvency.

MUNIc.i.p.aL SAVINGS BANKS

This form of savings banks properly belongs to a strong cla.s.s of munic.i.p.alities. They can only thrive in places where the local spirit is strong, the local government pure, and where the local officials are accustomed to wield a large measure of authority. Accordingly, they have come into being and met with success in those countries where the early history of the town made a large measure of local autonomy a necessity.

Towns of this cla.s.s possess the public spirit and the intelligent administration required for the success of such a public venture. They also possess a fund of gratuitous public service among the citizens which may be drawn upon when occasion requires.

Such banks are found in Austria, France, Italy, Denmark, Sweden, and j.a.pan. The best examples are to be found in Germany, where they have been in operation for a long period of years. Savings inst.i.tutions exist here at present in great variety and number, including State or Province Savings Banks, City Savings Banks, Township Savings Banks, County Savings Banks, _Bezirk_ (District) Savings Banks, Private Savings Banks, and Co-operative Savings Banks.

These banks have some 19,000,000 pa.s.s books out and their deposits amount to 13,500,000,000 marks ($3,213,000,000). These deposits are practically all guaranteed by the various munic.i.p.alities of the Empire, which condition forms a bulwark of confidence in the security of private wealth and earnings that cannot be shaken by hard times, panics, bank failures, etc.

PEOPLE'S BANKS

The co-operative banks of Europe, otherwise called "People's Banks," are essentially savings banks, in that they depend for their working capital upon the acc.u.mulated savings of their members. The aims of these banks are first _economic_, to enable the economically weak to make themselves financially strong by the power of combination; second, _moral_, to bring the members together in a unity of interests and to develop character by making thrift and good habits the groundwork of their operations; third, educational, to train in business methods and in the handling of money those whose scope has been narrow and whose experiences have been few in this regard.

In the establishment of these banks, the cardinal rules have been: Maximum of responsibility, minimum of risk, maximum of publicity. To secure the maximum of responsibility, unlimited liability has been accepted by the members in many cases; that is, each one pledging his all for the good of all; and, second, to secure the minimum of risk, character is made the basis of membership and good habits the prime requisite for membership. No investments are made in speculative enterprises, and the purposes for which the money is borrowed are closely inquired into and due care taken that the funds shall be applied for such purposes only. To secure the maximum of publicity the action of the bank in all matters is given the widest publicity possible in order that the work may have public inspection.

The result of these simple rules has been that the poor have proven as good, if not better, creditors than the rich; for once losing credit they can never regain it except by the slow process of years of good behavior.

The great pioneers in the "People's Banks" were Raiffeisen and Schulze-Delitzsch. They fully appreciated that any system that would succeed must descend to the level of its beneficiaries and they have admirably adapted the co-operative idea of banking.

THE LOCALIZATION OF SAVINGS BANKS IN THE UNITED STATES

The home of the mutual savings bank is in the East, where it began operations in 1816, and may even be said to be in the Eastern States; for west of Buffalo and south of Baltimore, we find only 21 savings banks of the mutual character. Out of 647 savings banks of the mutual type found in the United States, 593 are found in New England, New York, and New Jersey; and over one-half, or 334, are found in the two States of New York and Ma.s.sachusetts. Maine, Vermont, Connecticut and New Hampshire have 215, the total of which accounts for all but 100 of the mutual savings banks in this country.

The dearth of savings banks in Pennsylvania is notable. It would seem strange that in a state of such character, where the mutual savings bank had its first test, and where in individual instances it has been extremely popular and successful, the failure of such an inst.i.tution has been so p.r.o.nounced; but Pennsylvania is the home of the building and loan a.s.sociation (there are over 1,400 in operation), which seems in a measure at least, to fulfill the same purpose. From a pamphlet issued by the Dollar Savings Bank of Pittsburgh in 1905, the striking sentence is gathered, that to-day at the end of half a century the Dollar Savings Bank stands as the _only_ inst.i.tution of its kind in Western Pennsylvania.

As we go south and west the banks take on a more commercial aspect, and the savings bank as we know it in the East is a rarity, and the word "savings" in their t.i.tle is a misnomer. This is particularly true of Iowa, where we find practically all state banks using this word, and yet very few of them are other than banks of discount. The reason for the large number may be in the economic conditions of that State, and also the fact that banks may organise with as low as $10,000 in capital, making it possible to establish a bank in even the smallest place.

In Illinois, for instance, we find no distinctively savings banks, and in a city like Chicago, where if the same success had attended the savings banks as it has in New York, upwards of a billion dollars would be on deposit, we find no strictly savings inst.i.tution other than banks of discount and trust companies operating savings departments.

The reasons for the absence of mutual savings banks in the West and South lie, no doubt, as Hamilton suggests, in the fact that these sections were not settled from religious, but commercial motives; and the "spirit of New England" being lacking, the savings bank which requires a peculiar spirit of philanthropy, and age, as well, has not become a factor in the development of the country. In fact, the eleemosynary inst.i.tution, such as the college, the hospital, or the savings bank, the former requiring endowments of money to become successful, and the latter the endowment of gratuitous management to become possible, is last to follow in the economic development of a community. Another reason may be in the pre-ponderance of agriculture among the employments, which does not, until the country becomes highly prosperous, afford much in the way of idle funds which would go into the savings banks. The mutual savings bank is a product of the East and promises to remain so in spite of the fact that some of the Western states have very good, if not excellent, savings banks laws.

The dearth of savings banks in the South is, no doubt, due to the prostration following the Civil War, which left the country drained of its resources; the general ignorance of banking functions, and the improvidence of the Negro.

POSTAL SAVINGS BANKS

The postal savings bank is not a bank, or a banking system, so much as it is an adjunct of the Government; for the fundamental idea is that through the post office the Government holds itself out as willing to accept the savings deposits of the people, invest them in its own securities and become absolutely responsible for the safe return of the funds when called for, with a nominal rate of interest. All the leading countries of the world except Germany and Switzerland now operate the postal savings banks. While the rules may differ in the details, the general scheme is the same, and a review in brief of the system of Great Britain will serve to ill.u.s.trate the methods of operation of such an inst.i.tution.

The present system was established in England in 1861. The deposits, at whatever office they may be made, can be withdrawn from any other office which transacts a savings bank business. The accounts are kept in London and all moneys are remitted to the headquarters, where it is handed over to the Commissioners for the Reduction of the National Debt, who invest the funds in public securities.

Deposits may be made as low as one shilling or multiples thereof, and the limit of deposits for an individual is $150 during one year or $650 in all. Charitable societies may deposit without limit. For the benefit of youthful depositors, who have not a shilling to deposit, cards are issued upon which stamps are placed as purchased, and when filled represent one shilling, and may be turned in as cash. School managers are urged to bring this plan to the attention of the pupils, and it has been productive of good results, over 5,000 schools having adopted this system. The interest rate is fixed at 2-1/2 per cent. and never varies.

AMERICAN POSTAL SAVINGS BANKS

ARGUMENTS FOR AND AGAINST THE ESTABLISHMENT OF POSTAL SAVINGS BANKS IN THE UNITED STATES.

[94]In spite of the numerous differences in the postal savings bank system of the forty-odd countries possessing them, there are certain fundamental features common to all. Whatever else a postal savings bank may be, it is without exception an inst.i.tution working princ.i.p.ally through the post offices, and its primary object is the encouragement of thrift among the poorer cla.s.ses by providing safe and convenient places for the deposit of savings at a comparatively low rate of interest. In the discussion of the postal savings bank proposition in this country, no one questioned the desirability of encouraging habits of economy and thrift on the part of the public, nor was there any question that adequate savings bank facilities should be provided for this purpose; the debate hinged very largely upon the question whether adequate facilities of this character were not already provided by private initiative.

The advocates of a postal savings bank claimed that adequate savings facilities were not and could not be provided by private enterprise, because of the expense of conducting savings banks in small communities, and also in larger communities where the people were not yet educated to the saving habit; and they pointed particularly to the lack of savings facilities in the southern and western states....

... The country is not nearly so well provided with banks receiving savings accounts as with post offices. In the United States there are 270 square miles of territory to each bank carrying savings accounts and 50 square miles to each post office; there is a population of 8,370 to each such bank and of 1,542 to each post office; and there are 5.4 post offices to each bank carrying savings accounts. A comparison of the figures for the different sections and states shows that it is in the southern, western, and Pacific states that savings bank facilities are most lacking.... The New England, eastern, and middle western states are much better provided with banking facilities than are the other sections; but even in these states post office facilities are much more ample than savings bank facilities....

An objection repeatedly urged against the establishment of a postal savings bank was that it would prove a compet.i.tor to existing banks. The fear of such compet.i.tion appears to have been the chief cause of the opposition of most members of the banking fraternity to all postal savings banks proposals. Senator c.u.mmins of Iowa said in the Senate:

The banks of the United States are opposed unanimously to the inst.i.tution of a postal savings system.... I venture the a.s.sertion that during the nearly two years that I have been a member of this body ... I have received the protests of nearly every bank in my state against any such scheme, and those protests have usually been accompanied by a very large number of pet.i.tions, secured, I have no doubt, through the industry and energy of the bank officers.

It was argued that postal savings banks would have an undue advantage over private inst.i.tutions because of the great confidence in the Government entertained by working people; and it was a.s.serted that funds would be withdrawn from existing banks and deposited in the postal savings banks.... In reply, the advocates of postal savings banks claimed that existing banks had nothing to fear from governmental compet.i.tion; that they had the advantages of an established clientele, higher interest rates, higher limits, if any, in the amounts that could be kept on deposit, and of the close personal and advisory relation which so often exists between a bank and its customers. They further argued that postal savings banks would be a help rather than a hindrance to other banks. They would educate the people to habits of thrift and would draw money out of h.o.a.rds; and the deposits which they received would for the most part be transferred to other banks as soon as the limit fixed for postal savings banks deposits should be reached, or even before, as the depositor began to appreciate the safety of other banks and the advantage of their higher rate of interest....

The immediate occasion of the last active movement for a postal savings bank system in the United States was ... the losses and inconveniences arising from bank failures and from the suspension of cash payments in the panic of 1907. Naturally, therefore, the demand for great safety of savings deposits played an important part in the discussion.

The advocates of postal savings banks cited figures showing the number of national bank failures and the losses involved, and similar figures for savings bank failures in certain states. They made much of the large amounts involved and of the hardships in individual cases. On the other hand, the opponents of the postal savings bank scheme quite generally dealt with percentage figures rather than with absolute amounts and showed that for recent years the average losses, in terms of percentage of the amounts on deposit, were almost infinitesimal.