A History of Banks for Savings in Great Britain and Ireland

by William Lewins

CHAPTER III.

EARLY LEGISLATION ON SAVINGS BANKS—1817 TO 1844.

“The promotion of economical habits amongst the people is so much a matter of national concern, that we cannot conceive any direction in which the powers of Government would be more beneficially directed than in giving effect to schemes calculated to produce such valuable social results among the humbler classes of the people.”—Mr. Smiles.

It was not till Savings Banks had been regularly organised in this country, and not before they had achieved some considerable success, that the Legislature interfered in any way with regard to them. That the ruling classes, however, were not slow to encourage these undertakings is sufficiently manifest, when it is remembered that the first legislation on the subject dates from 1817, or only seven years after Dr. Duncan had organised his parish bank; and further, that the purport and effect of the bill then introduced was not to embarrass and hamper the new institutions, as was too often the case with new and partially-tried measures, but to offer them protection and encouragement. Prior to 1817, Savings Banks were simply voluntary associations, established, as we have already seen, by some benevolent gentlemen, who took a sort of leading part in the affairs of their respective neighbourhoods, and who were actuated in doing so by their desire to afford to their poorer neighbours help and inducement to save money. Up to this time the confidence entertained by the poor in the integrity and well-meaning of the rich was the only security they had that their money was in safe keeping; and it is only fair to add, that, so long as Savings Banks were promoted and kept up in this semi-paternal fashion, that confidence was seldom, if ever, misplaced. Savings Banks were soon seen, however, to possess germs of national good which would require greater means of development to be brought to bear upon them; and it was quite as plainly apparent that the more they extended, the greater the necessity became that they should be legally recognised and protected. The first mention of the new institution in Parliament was made by the Right Hon. George Rose, who was at the time Treasurer of the Navy, and one of the Committee of Council for the affairs of Trade and Foreign Plantations, and who, at the close of the session of 1815, and again in April, 1816, asked leave to bring in a bill, “to afford protection to Banks for Savings.” Mr. Rose, for the next two years, took a leading part in all discussions on the subject, as indeed he did on all kindred subjects.[28] He had written on Poor Laws and Benefit Societies; and, on account of his having, towards the close of the last century, carried through Parliament a bill legalizing Friendly Societies, was generally looked upon as an authority on such subjects. The first speech of the hon. gentleman on Savings Banks was remarkably able: he referred to the immense good which such banks as those of Edinburgh and Bath had done, and were capable of doing. The instances which had come before him of persons who before the establishment of Savings Banks had never saved a penny, but who then had made ample provision for a rainy day, were cheering in the extreme. He proceeded to give particulars of several instances of the kind, mentioning them, as he put it, “to induce hon. gentlemen to exert themselves, and that they might not sit with their hands before them, believing that nothing could be done.” The moral good to be expected from these banks was great and obvious. He hoped and expected that they would gradually tend to revive in the lower classes that decent spirit of independence, now almost extinct, which shrinks from accepting parochial relief; the poor man would learn to regard his own industry and labour as the source whence he was to derive temporary aid in the hour of sickness, or permanent support when the approaches of age should unfit him for active exertions. Not that this matter was applicable only to the poor; a consideration of the subject in all its bearings might well be given to it by the rich on their own account; he thoroughly believed that the poor-rates of the country would diminish in proportion to the spread of Savings Banks among the masses. Mr. Thompson, a Yorkshire member, expressed his warmest approbation of the proposed bill. In Yorkshire, he knew there was a great desire to establish Savings Banks of this sort, but the better classes were afraid of doing so, on account of their apparent complexity, and because they had not received up to this time the sanction or countenance of the Legislature. He hoped the provisions of the proposed bill would be as simple as possible, and afterwards that the bill and its clauses would be made as public as possible. Hundreds of working men, to his knowledge, might easily save ten shillings a week, whereas they did not then save a penny; nor could they be blamed to any great extent so long as they were without the requisite machinery for acting differently. Establish these banks, and place their working under proper Acts of Parliament, and he should then say that many who were accustomed in times of scarcity to solicit parochial relief would have no excuse for their conduct; if they did not avail themselves of the opportunity of becoming independent he would rather punish than assist them. Thus early were our legislators alive to the maxim that “the only true secret of assisting the poor is to make them agents in bettering their own condition.” The Chancellor of the Exchequer (Mr. Vansittart) believed that nothing tended more to the independence of the poor than their learning to support themselves by their own exertions. He thought the object of the proposed bill would be congenial to the feelings of the whole House. On the part of the Government, he was ready to offer his best assistance on behalf of an institution such as the Savings Bank, where rich and poor might meet together and mutually combine in promoting, under Divine protection, their natural rights. “There, forgetful of those petty distinctions which temporary circumstances had created, they met as brethren, each to do his duty to his neighbour.” After an Irish member had expressed his wish that the same bill might be extended to Ireland, where, he truly said, such habits as these banks inculcated were most urgently needed, even more so than in England, this one-sided debate was closed.[29] The bill was read a first time on the 15th of May, 1816. It provided, that any number of individuals might enrol themselves as Trustees of a Provident Institution or Savings Bank at the Quarter Sessions. It was not meant by this to give any power to Justices of the Peace, but simply that the act of enrolment might thus be made in as public a manner as possible. It was further arranged, that the Rules proposed for the management of the new Savings Banks should in like manner be left with the Clerk of the Peace for the respective counties. The bill authorised the Trustees or Managers to appoint such officers as were likely to be needed, and required that in all cases where the persons were to be entrusted with money, they should give reasonable security. It was only further provided, that depositors should not be prevented from applying for parish relief, but that, if any dispute arose on this point, the decision in the matter should be left with the magistrates in Quarter Sessions. The session being near its close, and several members having expressed their sense of the importance of the subject and the necessity of producing a well-considered bill to regulate these banks, the bill was withdrawn till the next session. On the 15th of February, 1817, Mr. Rose again returned to the subject, and got leave to re-introduce his bill. He did not on this occasion enter minutely into the consideration of Savings Banks, further than to express a conviction he had, “which daily became stronger,” that these institutions, if properly directed, would have a very direct influence on the vexed question of Poor Law relief. He contended, that, if they became generally introduced through the length and breadth of the country, they would gradually mitigate, and then do away with, the evils attending the system of the English Poor Law; and he very reasonably urged that any measure which would tend, even remotely, to such a desirable object, was deserving of, and ought to have, the hearty support and countenance of the Legislature. Mr. Curwen, an authority on this phase of the subject, held that there could be only one opinion as to the utility of the banks, but he was satisfied “it was an error to imagine they would essentially contribute to the alleviation of the present distressing situation of affairs.” Nothing short of a measure which in its nature might have a compulsory influence over the minds of the people, to teach the poor and the peasantry that the means of relief, of content and happiness, were within the reach of their own exertions and industrious application, would be effectual. After a little further opposition, during which another member said that the bill would do more harm than good—that Savings Banks were going on extremely well without any Act of Parliament, Mr. Wilberforce, ready at all times to forward any measure which seemed likely to benefit the poorer and more defenceless portions of society, congratulated his friend on his proposals, and said that the system of Savings Banks pleased him most because it was so eminently adapted to teach the poor how much they might do for themselves by their own self-denying exertions. This was one of the class of things for which he, the House, and the country ought to be extremely indebted to all who had been instrumental in originating it and bringing it to greater perfection. “Whatever difference of opinion,” continued Mr. Wilberforce, “there might exist as to the Poor Laws, it was of all things desirable to countenance and foster so sanative a principle as that on which Savings Banks were founded.” The second and principal reading of the bill took place on the 15th of May, 1817, on which night many petitions were presented in its favour, and only three—viz., from Norwich, Hertford, and St. Paul's, Covent Garden—against it. All opposition, however, to the bill resolved itself into simply contesting one or two of its clauses. An attempt was made to throw out the clause which obliged the Trustees of Savings Banks to vest all moneys received by them in the Public Funds, several members contending that at any rate some of the money might be much better employed on mortgage, to the relief of many different interests in the immediate neighbourhood, and to the greater productiveness of the money so lent. The arguments used on this occasion were very similar to those occasionally used now in relation to the same subject, and they were then as unavailing as they have been subsequently: the preponderating opinion was that the safety of the investments was, and ought to be, the first and greatest consideration. The clause, however, which proposed the giving of premiums out of the parish funds to those contributors who had done best in the way of saving money, fared worse, being rejected in committee almost unanimously. The growth of such principles could not be forced, and, if they grew at all, they would do better without the crutches of eleemosynary aid. At the third reading, a spirited contest arose about the proviso that depositors in Savings Banks should not be disqualified from receiving parochial relief. Mr. Rose contended that anything, which would have a tendency to make the poor think that the richer classes were legislating with ulterior objects in view, such as to get rid of poor-rates, would throw obstacles in the way of Savings Banks. There would be no need to think of such considerations in a few years, when Savings Banks were more firmly fixed amongst the institutions of the country; it was highly expedient, however, that they should now be allowed to have their weight. In a few years, argued he, the poor will have formed habits of saving, and so they will have become independent, and be above throwing themselves on the parish, at any rate with impunity. Mr. Wilberforce held and expressed the same view, which Lord Milton and others opposed; the clause was retained, notwithstanding, by a majority of thirty-three in a House of eighty-seven members. With this discussion the bill passed, and became law in August, 1817. As this bill[30] is the beginning of legislation on the subject of Savings Banks, we would here state in outline the principal objects with which it dealt. A sort of Supplementary Act, cap. 105, was passed to apply more particularly to Ireland, to suit the Irish members, who, when the matter was under discussion, argued that the same Act would not deal so well with Ireland, and who, therefore, wished the two countries treated separately. Both the acts required that the Rules of the proposed Bank for Savings should be deposited with the Clerk of the Peace of the county in which the bank should be situated, though no discretionary power was left with the magistrates in the matter. The Trustees and Managers were prohibited from receiving any profit from any transactions in these banks, and were empowered to pay over the moneys they received into the Bank of England, or Ireland (as the case might be), to the account of the Commissioners for the Reduction of the National Debt, the latter being instructed and empowered to invest them in Three per Cent. Bank Annuities. Interest on money thus deposited in the hands of Government was guaranteed to the Trustees of Savings Banks at the rate of 3d. per cent. per day, or 4l. 11s. 3d. per annum. The Act restricted the amount which any one depositor could place in a Savings Bank in England to 100l. in the first year, and 50l. in any subsequent year. In Ireland the limitation was 50l. in any year, though why this distinction was agreed upon does not appear.

It was not long before it was seen that the Act just described was defective in many particulars, and further legislation rendered necessary. During the year which elapsed after the passing of the Savings Bank Act, the progress of these institutions, in so far as the number and amount of their deposits were concerned, was great beyond all expectation. In nine months from the date of the bill of 1817, the large sum of 657,000l. had been deposited. The largest amount received at the National Debt Office during that period from any one bank was 32,000l., remitted from the flourishing Exeter bank; the smallest was received from a new bank just then opened at St. John's, Wapping, for the benefit of sailors living in that locality. By the middle of the year 1818, or less than twelve months after the passing of the first bill, there were no fewer than 227 banks established in England and Wales, and about an equal number in Ireland and Scotland. That the encouragement which the bill had given was real is evident from the fact that more than half the entire number of English banks were first opened in 1817-18. So rapid indeed had been the development of the measure, that it was soon apparent that the increase of deposits was in a ratio far beyond any possible increase in the amount of wages or profit from which small savings could have been made. No doubt that now, for the first time, many hoarded savings saw the light, and began to bring in to their owners a return; but even this does not account for such an increase of business. Towards the close of 1817, 20,000l. was deposited in one day, in a town in the North of England where a bank had just been opened, and it was known that very little of this money belonged to the industrial classes.

The interest given for the investment made, it appeared, was attracting a much higher class of depositors than it was ever sought to encourage, or than the Act was intended to benefit. The interest guaranteed by Government has already been stated. In amount, it was at least 11s. 3d. more than the interest yielded by any other Government security, while Consols did not bring in more than 3l. 5s. per cent. Many, we believe, in the first instance put their money into the Savings Banks to afford encouragement to their poorer neighbours or dependents, and in order to inspire them with confidence: and it will be well understood how necessary this was at the outset, seeing that at that time there were few means of inculcating sound political knowledge, or, indeed, information of any sort, among the great mass of the people, who too often were swayed hither and thither at the mere whim of some noisy and ignorant demagogue. Whether or not this sufficiently accounts for the fact of the better classes contributing to the early Savings Banks, it is clear that all classes soon found out that it was not possible to do better with their money, and hence allowed it to remain where it was. Several banks were very careful to exclude by their rules all but mechanics, servants, and persons in similar ranks of life, but the rest either had no such rules, or were very careless about enforcing them. One gentleman, possessed of 40,000l. was known to have deposited large sums of money in one Savings Bank in the names of his six children. On the 17th of March, 1818, the Chancellor of the Exchequer, influenced by such abuses as these, asked leave to bring in a bill to amend the Act passed last year. No trace of the proceedings of Parliament with regard to this little bill remains, but it seems only to have been meant as a temporary measure of relief till the whole subject could be more effectually grappled with. It simply provided for some alterations in the forms of debenture, gave power to Justices of the Peace to reject, for a sufficient reason, any Rules deposited with their clerks, and prohibited the arrangement by which a person might invest in a Savings Bank by means of a ticket or number, and without disclosing his or her name.

Shortly after this period, in the year 1819, a question was put to the Chancellor of the Exchequer in the House, which seems to have raised some merriment among the members. Ridiculous as it might seem, it only reflected the spirit in which many people spoke of the measures which had recently been passed with regard to the compulsory investments with Government of the money placed in the banks. In Lancashire, aided and stimulated by Mr. Cobbett, who all along sneered at the “bubble” of Savings Banks, the people got up an absurd cry, and long kept it up. Mr. Wilbraham, a Lancashire member, asked Mr. Vansittart if there was “any tittle of truth” in the reports that were so prevalent “that Government was about to seize the funds of the Friendly Societies and Savings Banks, and apply them to the payment of the National Debt. This report,” said the hon. member, “had been caught up by persons little conversant in political matters, and had actually caused the breaking up of Friendly Societies, to the great loss of those who had claims upon them.” He had no doubt the course of legislation had led to this report being circulated by designing persons, and though quite aware that it was impossible for the Government to touch any of these funds, he would like to hear a declaration on the subject from the authority which in that House was alone competent to give it. The Chancellor of the Exchequer said, that even after much experience of the extent to which malignity and absurdity could go in the propagation of reports injurious to the Ministry, he had not been prepared for such a rumour as this. “It was utterly groundless; there was not the smallest foundation for it, either in fact or possibility. Under the authority of Parliament, the money belonging to the institutions in question was kept entirely apart from the public money, and even if the Treasury were base enough, they had not the power to misappropriate these funds.”[31] Mr. Brougham observed that this was not the first time that such reports had been circulated, and such absurd cries raised. When the Education Committee was sitting, it was asserted that its intention was to seize all charitable funds, and to turn the two Universities into charity schools. In such cases as these facts or reason on such reports were very ineffectual, but he hoped that in this particular instance they would be of some avail.

Before we notice the further progress of legislation in respect to Savings Banks, it would be well to refer to their progress and operation in Scotland. None of the Acts passed up to this time in any way related to the Scotch banks. When Mr. Rose's bill was before Parliament, its application to Scotland was successfully opposed; a separate bill was introduced by Mr. Douglas, the member for the Dumfries burghs, in 1818, but this did not pass. The failure to obtain this act was said to be owing exclusively to the necessity for legislative interference not being felt in Scotland; it seems now much more likely that the failure was owing to the want of unanimity among the Scotch promoters of Savings Banks, Mr. Duncan taking a decided stand with the member whom he had influenced so far as to get him to bring in a bill, and the promoters of the Edinburgh bank, on the other hand, who kept up in this way the long-standing dispute which they had always had with “the Father of Savings Banks.”[32] There was certainly some reason why the same legislation was unnecessary for the two countries. There were many circumstances which rendered interference on the part of the Legislature necessary, or at least expedient, in the case of the English banks, and these circumstances scarcely in any way applied to Scotland. The chief of these were the Poor Laws, and the want of secure places of deposit for small sums to bear interest, and be payable on demand; the English bankers did not usually allow interest on money lodged with them, whereas in Scotland they gave a liberal return for it. The general dispute was at its height in 1819, when the Edinburgh Society published a report against any State interference, and when Mr. Duncan, who, as we have already said, was a strong advocate for parliamentary encouragement and protection, replied in a lengthy and able letter,[33] in which he clearly showed that difficulties and discouragements would surely be felt in the progress of Savings Banks, if they were not arranged according to law. The radical difference observable in the two classes of banks—and there were at this time 182 Savings Banks in Scotland with 7,000 depositors, and deposits to the amount of 30,000l.—was the difference between the Parish Bank at Ruthwell, and the Savings Bank at Edinburgh, for on one or other of these models all the Scotch banks were with very few variations formed. Mr. Duncan placed, or intended to do so, the management of his bank in the hands of the whole body of depositors; the Edinburgh bank excluded all popular interference in its management, and left every one to deal with it or not, at their pleasure. The Ruthwell bank confessedly, and as we have seen, partook of the nature of a Friendly Society; the Edinburgh bank as nearly as possible approached to the character of a commercial undertaking. The founder of the former was thus an advocate for minute regulations, while the patrons of the latter wished to be left at liberty to manage their affairs in their own way, and only to call in the help of the Legislature when real grievances needed redressing.

With the exception of a short Act[34] passed in 1820, by which it was provided that charitable institutions might deposit a whole or a portion of their funds with the Commissioners, no further legislation on Savings Banks was attempted till 1824. In this year the Chancellor of the Exchequer (Mr. Robinson) took up the matter where Mr. Vansittart had left it, and carried a Bill through Parliament still further to amend the law.[35] With a view to remedy still more completely the evil of classes, other than the industrious ones, investing their money in Savings Banks, this Act provided that the sum which could be deposited during the first year should be limited to 50l. and should stand at 30l. for any succeeding year. To provide against anything like evasion of these regulations, a form of declaration was introduced,—which we scarcely need say has existed up to the present time,—stating that the subscriber to it had not contributed to any other bank than the one at which he made the declaration. The Chancellor of the Exchequer endeavoured to carry a clause which required that this declaration should be subscribed by the proposed depositor in his own name, “and own handwriting,” in place of a mark or initials, but this was wisely discarded. This absurd proviso would have put an educational test in the way of those very classes whom, to the exclusion of all others, it was desirable to attract to Savings Banks. Another important clause succeeded better, and was plainly proper to the object meant to be served by it. No depositor could by this further clause invest more than 200l. excluding interest, in any Savings Bank. The case of the funds of Friendly Societies was the subject of another clause. It was only four years since these societies, as we have seen, were allowed to deposit their funds through the medium of Savings Banks; but the Act of 1820 had given rise to so much abuse, or to so much that seemed like abuse, that some alteration was necessary. The high rate of interest which had been guaranteed by law to these banks induced, not only individuals of rank and property, but large charities to place their funds in them: the result was a great burthen to the public, inasmuch as the excess over the ordinary rate of interest for public securities was thrown in by the Legislature with the object of increasing the provident disposition of the poor. As it was seen that, if this state of things continued, the original object of State assistance and countenance to Savings Banks would be defeated and the public in some degree prejudiced, it was proposed that no friendly society or charitable institution of any kind should deposit their funds in any bank. If the alterations now proposed did not suffice to preserve Savings Banks from the inroads of the rich, the Chancellor of the Exchequer saw no other means of meeting the evil than by reducing the interest given. He “should feel most reluctant to weaken the confidence which the public reposed in these banks, and which rendered them one of the greatest blessings ever conferred upon the country;” but the evil must be met in one way or the other, or with the loss of their normal character they would lose their efficiency.

The Act of Amendment then went on to deal with the responsibility of Trustees, the giant difficulty of Savings Banks from that time until now. The same arguments were used at this early period as at different times subsequently. Those who placed money in Savings Banks ought to have some security that that money was not made away with by some one through whose hands it would pass; and the Trustees, who had the sole control over the affairs of the banks, and appointed all the subordinate officers, were the persons who ought to give some security. On the other hand, enforce to the full the liability of Trustees, and the most able persons would be deterred from accepting so much responsibility, and would give up the connexion which they had already voluntarily assumed. It was now therefore settled that the Trustees should deposit all the money they received with the National Debt Commissioners, and that they should be held liable in case of default only to a certain amount. A legally and efficiently constituted bank should consist of twelve Trustees, each liable for 50l., or 600l. in the aggregate. This Act, it was also decided, should refer to Ireland equally as to England.