A History of Banks for Savings in Great Britain and Ireland

by William Lewins

The bill having been made law, and new depositors secured to a considerable extent from robbery and exaction, the attention of the Legislature was called to those who had lost their all by past frauds; and the records of Parliament show that one member after another reverted to such topics until redress was obtained. On the 29th of March, 1849, Mr. Reynolds, the member for Dublin, moved for the appointment of a Committee to investigate into the case of the Cuffe Street bank in Dublin, and to ascertain who were liable for the extensive frauds in that bank. He alluded to the unsatisfactory result of the previous inquiry, which was, indeed, not meant to be final. In making his motion, Mr. Reynolds, who had access, of course, to the best sources of information, entered into a full account of this bank, stating, indeed, many of the facts which we have already given. He complained most bitterly of the Government, who had accepted the advice of a “flippant barrister,” as Mr. Pratt was designated, and who had suffered the bank to go on when it was known to be in a state of hopeless insolvency. He described the heartrending scenes which he had witnessed in Dublin, owing to the failure of the bank, and during the last eighteen months, and related some of the cases to the House, where they had ended in insanity, death, or suicide. That the depositors were mostly poor persons he proved, by stating the average amount due to each of the 1,664 persons who were creditors of the bank to be but 27l. Mr. Reynolds added, that he had no hesitation in saying, under the peculiar circumstances of the case, that the Government ought to make good the loss.[81] If he had not proved that point, he left it to a Committee of Inquiry to take up. “In the name not only of justice, but of mercy and compassion,” he besought the House “to agree to his motion, and to save many poor persons from utter and total ruin.” The member for Dublin University (Mr. Napier) seconded the motion for inquiry, and discussed many of the details of the failure from a legal point of view. In one remark, he gave expression to a very general feeling: the course of legislation on Savings Banks had plainly been to reduce, for strong reasons doubtless, the responsibility of trustees; in proportion, however, as that responsibility was reduced, so he, Mr. Napier, thought the moral responsibility of the commissioners increased. “Precisely in the same degree as the trustees were relieved, should the vigilance of the other body have been awakened.” Nor was it less unfortunate—though this is a matter which was not alluded to—that at a time when it was thought most fitting that the interest on deposits should be reduced, steps should also be taken to make them less secure as well as less remunerative.

Mr. H. A. Herbert, the member for Kerry, proposed an amendment, extending the inquiry to this Tralee and Killarney banks, and also to the single case of failure in Scotland, at Auchterarder. Mr. Herbert dwelt upon the case of these frauds in an able manner, but we reserve the consideration of them to the next chapter. The reference to the Scotch case doubtless called up Mr. Cowen, the member for Edinburgh, who was sorry to hear of the necessity for any such inquiry in Scotland; he “had been accustomed to think that they were above suspicion in Scotland with reference to their banking matters.” Mr. Cowen said that he regarded all discussions on Savings Banks as most momentous, and as involving the consideration of the most important national questions. “It was of the greatest importance that Savings Banks should be placed on a solid foundation, and cleared of all those injurious anomalies which now attached to them,” for he “believed that they might be made the means of aiding in a great measure to stem that flood of pauperism which was now overflowing the land.” Much warm discussion followed. The Chancellor of the Exchequer alleged that the proposed inquiry would be both a useless and an expensive one; and Mr. Goulburn, the ex-Chancellor, who was equally committed to the same course of legislation and the difficulties which that legislation had brought upon the Government, rendered prompt assistance by saying exactly the same thing. On a division, it was carried by a majority of three in a House of 100 members, that a Committee should be appointed; and by a majority of eight, that the inquiry should extend to the three Irish and the Scotch defaulting bank.[82]

It was one thing, however, to carry a Committee of Inquiry in the face of both the great parties of the House, and another to nominate the members who should compose it; and this Mr. Reynolds subsequently found out to his evident chagrin and disappointment. The Government had clearly not been sufficiently on the alert, and hence they had been beaten in the first particular; they secured themselves however against any further defeat. In the following April, Mr. Reynolds proceeded according to usage to nominate his Committee, which he wished should consist of eight English and seven Irish members. The Chancellor of the Exchequer objected, and wished for the reappointment of the Committee of the preceding session. Mr. Goulburn promptly assisted by saying, that it would be a reflection on the Committee of last year if it was not so reappointed. In that Committee there were only three Irish members, though the subject then, as now, had exclusive reference to Ireland. Mr. Reynolds, Mr. Herbert, Sir Henry Willoughby, stoutly contested the point, which ended in the names of two additional Irish members being proposed. The Government saw the importance of the question, and that the inquiry would be made in this way to turn upon the administration of Savings Banks generally, and the responsibility of Government in regard to them, and succeeded in resisting any change by an adverse majority of 111 to 74. The whole of the names not having been gone through on this occasion, the Irish members returned to the subject again a few days subsequently. “In the names of the poor who had been rendered paupers by laws badly administered,” one member asked, “for an impartial jury.” Some of the daily papers had declared that the Government meant to pack the Committee and so get a favourable decision, and this encouraged the independent members to persevere. Mr. Herbert said, “the Government all along most consistently attempted to quash inquiry.” He condemned in strong terms, and under the apparent approbation of the House, the conduct of Mr. Pratt in relation to the Irish banks. Mr. Reynolds declared he would divide the House upon all the remaining names offered by Sir Charles Wood. After two divisions, however, when he was left in a minority of 42, and 59, in a House of 202 members, he desisted from carrying out his threat; though he had a close phalanx of followers, he saw he had no chance against the combined hosts which the leaders of the two principal parties in the House had brought to bear.

The members ultimately appointed were the Chancellor of the Exchequer, the ex-Chancellor, Mr. Herries, Sir George Clerk, Mr. P. Scrope, Sir G. Y. Bullar, Mr. Ker Seymour, Marquis of Kildare, Mr. Adair, Mr. G. Craig, Mr. W. Fagan, Mr. Bramston, Mr. J. A. Smith, Mr. H. Herbert, Mr. Reynolds. This Committee sat thirteen days, and examined nine witnesses, including several officials connected with the Cuffe Street bank, Mr. Tidd Pratt, Mr. Higham of the National Debt Office, and Mr. Boodle of the St. Martin's Place Savings Bank, but came to no conclusion, and recommended nothing to the House.

On the 13th of May, 1850, the same gentlemen were reappointed under the self-same conditions as in the previous year: they sat eleven days, and examined some of the same and other witnesses, and on this occasion made a long and exhaustive report to the House.[83] This report, for which all the members except Mr. Reynolds and Mr. Herbert voted (each of these gentlemen having produced a report of his own which the Committee would not accept), went over the case of the defaulting Savings Bank in Dublin very succinctly; exonerated National Debt Commissioners and their officers from blame; stated that they found the commissioners did not exercise all the powers they possessed, but this arose “partly from a misgiving as to the effect of an exercise of their authority, and partly from an unwillingness to run the risk of creating a discredit of these institutions;” and that if the trustees had taken the advice of the commissioners, when in 1845 they advised them to close the bank, the loss to the depositors would not have exceeded five shillings in the pound. For these and similar reasons the Committee came to the weighty conclusion, relative to this particular case of fraud, that “while they cannot admit the existence of any legal liability on the part of Her Majesty's Government, they recommend the case of the depositors in the Cuffe Street bank to the favourable consideration of the Government, with a view to the adoption of some measure which shall at least mitigate the extent of their loss.” With regard to the other frauds into which they were instructed to inquire, they reported that there were “no peculiar features connected with them differing from those of other banks which have suffered from the dishonesty of their actuaries.” They concluded by expressing their conviction of the unsatisfactory state and working of the existing law; proper power did not reside with any authority “to check abuses, however indisputable;” by expressing their opinion that the provisions of the law of 1844 had worked in a manner obviously at variance with the intentions of Parliament, and wound up by the following important paragraph:—

“Your Committee have observed with much satisfaction that the Chancellor of the Exchequer has introduced a Savings Banks bill, which is calculated to remedy several important defects in the existing law, and extends the responsibility of Her Majesty's Government to the depositors; and they therefore abstain from all observations on this part of the subject, further than to state the conviction, which this inquiry has forced upon them, of the urgent necessity for further legislation, if those institutions, which have of late years acquired an extent and importance so little anticipated by the original founders of Savings Banks, are to preserve their hold on the confidence of the country, or produce the beneficial results expected from them in encouraging and rewarding the industry and self-denial of the working classes.”

This report was presented to the House on the 1st of August, and at once referred to a Committee of the whole House. Next day, the Chancellor of the Exchequer proposed that a grant of 30,000l. should be made to the defrauded depositors in the Cuffe Street bank, out of the Consolidated Fund. Sir James Graham opposed the grant. If this money was a matter of charity, he argued, they were opening the door to a dangerous principle; if of justice or equity, the claim ought to be paid in full. It was unworthy of the British public to compromise for ten shillings in the pound. Other members asserted that if Cuffe Street depositors were paid, the poor creditors of other insolvent banks would likewise have to be paid. Generally, however, the House felt with the Committee; it was altogether an exceptional case, the claims of the former being, as Sir Charles Wood expressed it, “something between equity, sympathy, and charity.” Mr. Bright, a resident of Rochdale, and Mr. Sharman Crawford, the member for that borough, whose ears had lately rung with the tales of heartless deception practised there, were both for paying these depositors in full; “there might be no legal claim, but there were the claims of equity and morality.” Mr. Bright, indeed, went so far as to say, that if Government would bring in a bill to secure other banks in future from these dreadful calamities, he would willingly vote that all claims from Savings Bank failures should at once be met by the State. The House divided on Sir Charles Wood's motion, when 118 members voted for it, and 39 against it. We may as well say here that several attempts were subsequently made to get the remaining 30,000l. from Government, but without avail.[84]

It will not be difficult for the reader to understand the position of affairs up to 1850. The law was clearly unsatisfactory; it had been pronounced so by Committees which, though composed of nearly the same members, had sat in three successive years, and patiently examined into the question in its every detail. The only difference of opinion indeed in the Committees was, as to the persons who were liable, and to what extent, for the defective state of the law, and the results to which it had led. Nor is it at all wonderful that legislation should have been needed. Savings Banks, as it was often pointed out about the time, had increased enormously within a short period, and beyond all proportion to the expectations which were originally formed with regard to them. When they were first started, many benevolent individuals entered heartily into the work of managing them, and asked for no return, except the sense that they had assisted in a humane and praiseworthy object, for the labour they underwent. Putting two considerations together—the great increase of business, and the no less certain decrease in the first ardour attending such enterprises—the increase of paid officials became absolutely necessary, and in almost a corresponding ratio did the unpaid machinery decline. Slowly but surely the management of Savings Banks went out of the hands of an unpaid into those of a paid staff of officials, and every year the system of check became more nominal than real.[85] It was apparent, not less from the proceedings of solvent Savings Banks than from the exposures made in the case of unsound ones, that those who had originally taken part in the establishment of these institutions slowly became honorary in place of active members of the board; and of those who still continued to take a share in the work, many had got into the habit of leaving their duties to subordinates, in some cases signing blank forms, and even cheques, to be filled up by the acting-manager at his discretion.

At this stage in the history of Savings Banks, the Chancellor of the Exchequer came forward,—as the reader has already learnt from the Report of the Committee of 1850,—with a bill to amend the law. This bill he introduced to the House of Commons on the 29th of April, 1850, and it forms part of our object to explain in detail the plan now proposed, inasmuch as for many subsequent years the same measure, with only trifling modifications, was offered over and over again to the consideration of the House, and as often declined, through the overpowering influence of the Savings Bank interest in the country. On bringing forward his bill, the Chancellor said he wished to avoid all reference to the past, except in as far as the experience of the past was a guide to future legislation. He very briefly traced the history and progress of Savings Banks, remarking at the time that, if he were not to do so, few could be aware of their real nature, and how they had grown to their present dimensions. We need not follow Sir Charles Wood through this account, nor even repeat the reasons which actuated the Legislature in making changes in the law from time to time up to the year 1844. Referring to the Act of that session, he described it as “most defective,” and the bill he wished to introduce would amend it. Speaking of the responsibility as to loss in Savings Banks, which many persons thought should rest with the Government, he repudiated the notion, unless Government was allowed to have some control over the persons who might occasion the loss. On the other hand, he did not wish to do away with “the most invaluable feature in Savings Banks—the local management.” He thought, however, that Government might take a medium course, and fairly meet the case by making such arrangements as “would end in the State bearing nearly the whole responsibility as regarded the receipt and payment of money.” What he proposed was to alter the enactment that the treasurers of Savings Banks should receive no emolument, and to vest the appointment of Treasurer in the hands of the Commissioners for the Reduction of the National Debt. The existing treasurers might in most cases be continued, and if they wished to work for nothing, they might still have the option; but he insisted on the Government reappointing such officers, and upon having a control over them. To this officer, or some one acting for him, all payments should be made over—the receipt and payment of money by any other person to be declared illegal.[86] He considered that this arrangement would guard against the possibility of fraud. The treasurer and secretary, acting for different interests, as it were, could scarcely be guilty of collusion, and the one would in all cases act as a check upon the other. If this plan were agreed to, the Government would of course be responsible for every farthing paid to the treasurer.

This was the great and distinguishing feature of the measure which the Government was disposed to adopt; but there were other features in the bill of considerable importance, which ought not to go unmentioned. Thus, it proposed that the Act of 1844 should be repealed, and that trustees should be responsible for their wilful neglect or default, as in the Act of 1828. It was clear, however, that under the appointment of treasurers the responsibility would be little more than nominal. Another point which the bill provided for was an efficient audit of the accounts, the trustees of each bank to appoint an auditor, and the pass-book of each depositor to be annually examined, the auditor in each case comparing the book with the ledger of the office.[87] The bill proceeded, further, to give power to the National Debt Commissioners to send down to any Savings Bank, should they see occasion for it, an Inspector, to test the accuracy of the accounts of that bank: with the other provisos already mentioned, depositors would thus be absolutely safe. The next clause provided against any further loss to Government. The Chancellor in introducing this subject spoke of the different rates of interest which had been given to Savings Banks, and said all of them were higher than could be given without loss. But this was not all. The loss sustained in having to pay out a large sum of money whenever called for, no matter how low the Funds were at the time, was equal almost to the former. After explaining the case, and giving examples of its working, he added that Government thus suffered a loss on capital and a loss on interest. “It had been proposed that Government should merely act as a broker, making depositors subject to all the fluctuations of the Funds; but,” said the honourable gentleman, “from the numerous communications I have received from all parts of the country, depositors think much of their getting their money back as they put it in, and looked to the amount of interest as a secondary consideration.” He then gave a variety of statistics, and proposed that the limit to the amount of deposits should be fixed at 100l. and that the rate of interest should be reduced from 3l. 5s. to 3l. for trustees, and 2l. 15s. instead of 3l. 0s. 10d. to depositors.[88] The Chancellor of the Exchequer concluded by expressing the wish that the bill of which he had given the principal clauses, should be discussed fully and temperately: it involved no party feeling, but it involved many things intimately connected with the welfare of the classes for which Savings Banks were established: he said he had done his best to meet the difficulties of the case, but difficult as it was to do, the matter ought at once to be settled, and to be settled once for all.[89]