A History of Banks for Savings in Great Britain and Ireland

by William Lewins

16. That no banking concerns should be permitted to assume the name of Savings Banks, except such as have had their rules duly certified.

17. The rules of every Savings Bank shall be in force only after they have been certified by the Barrister, to whom no fee shall be payable.

18. That the responsibility of trustees be enacted in the same terms as in the Act 9 Geo. IV. c. 92.

19. That the present limits of yearly and total amounts of deposits payable on demand be maintained.

20, and last. That whenever any deposit shall amount to 150l., the Commissioners may, with the consent of the depositor, invest a portion of that deposit in the purchase for the depositor of 100l. stock, the interest on which shall be received by the Commissioners and placed to the depositor's account.

Arrived at this point, and in order that the general reader may properly understand the next attempt made at legislation on behalf of Savings Banks, we ought to say something in the way of explanation as to the disposition of the funds of Savings Banks after they reach the hands of Government. By the 57 Geo. III. c. 105, the money paid in on Savings Banks account was to be invested in Three-and-a-half per Cent. Bank Annuities.[103] Subsequently, the law was altered, by which the money might be invested in Bank Annuities or Exchequer bills. The purchases of Stock are made upon the order of the Comptroller-General by the Government broker; but no Exchequer bills are bought, except under the special direction of the Chancellor of the Exchequer. The practice is, when the balance at the bank appears to be larger than is necessary, gradually to apply it to the purchase of Stock at the price of the day. It appears that between 1828 and 1844 Stock was sold to the amount of 8,166,511l., and purchased to the amount of 8,816,400l.; Exchequer bills were bought to the amount of 19,888,100l., and sold to the extent of 13,041,500l. Sir Alexander Spearman stated that he had, on his own authority, bought Stock from time to time, as the state of the balance required it; he contended that he had legally such authority by virtue of his office, and he did not hold himself responsible to give any explanation of his proceedings to the trustees or managers of banks.[104] This was just what Savings Bank managers and trustees did not agree with, and it was an interpretation put upon the statute which even experienced statesmen disputed.

Mr. Wortley told the Committee of 1858 he considered the system of mixing up the Savings Bank funds with the Government money very injurious to Savings Banks. Mr. Boodle strongly objected to the practice of dealing in Stock and Exchequer bills, and of exchanging one for the other. He said Mr. Goulburn had been induced to discontinue the practice, and to publish an account of the different transactions, but that the practice had been revived in 1853, had continued ever since, and in a worse form than ever. Lord Monteagle, who spoke very strongly on these points, stated that the present use of Savings Bank money was entirely at variance with the original design; that the Commissioners had no power to change the securities, and thus become active agents in the Stock Market.[105] Lord Monteagle expressed strong objections also to the power of funding Exchequer bills bought for the Savings Banks at the price of the quarter at which they were bought. Sir A. Spearman, who was somewhat unfairly left to bear all the brunt of every attack of this kind, on account of the Committee neglecting to call upon any of those five members of the House who were or had been Chancellors,[106] stated that the Savings Bank fund on the 20th of November, 1857, was 34,399,082l. Stock; whereas, if there had been no investment in Exchequer bills or bonds since 1853, the amount would only have been 34,207,371l. Stock.[107] Mr. Boodle dwelt upon the reputed losses which the country had sustained through the Savings Banks, and declared that if there had been any loss, it had been occasioned by the State not treating the funds exclusively as Trust Funds. In this matter, Mr. Boodle undoubtedly had the best of it. “Whenever any bill is introduced into Parliament on Savings Banks,” said this gentleman, “this loss is thrown in the teeth of Savings Banks, and used as an argument, sometimes for reducing the rate of interest, at other times for reducing the limits of deposits, either annual or in gross. Therefore, it acts most detrimentally to the depositors; and it has gone out that the Savings Banks are an enormous expense, whereas we are perfectly satisfied that, if this money were properly administered, there would be no expense whatever.[108]”

That Savings Bank money was not only used for financial purposes, but turned to extremely profitable use, there can be no doubt: hence complaints of loss could only be made by persons but partially acquainted with the facts. Mr. Hume indeed, had he been cognizant of the profitable way the funds were used, could scarcely have complained about the loss to the State so often as he did. Mr. Gladstone at this time, and subsequently, never missed an opportunity of putting the matter on the proper footing, and to set it forth that, instead of a loss, the funds had been a source of considerable gain to the State. In 1834, when Lord Althorp was Chancellor of the Exchequer, and Lord Monteagle himself (as Mr. Spring Rice) Secretary of the Treasury, they determined to reduce the interest on the Four per Cents. Those who held money in the Funds and were dissatisfied with the reduction were paid off out of the Savings Bank money (without which, indeed, the reduction could not have been earned through), and a saving to the country of 53,000l. a year was the result. Mr. Goulburn, using the power he had in the same way, or with the money of Savings Banks to fall back upon in case of need, effected a saving of 750,000l. a year in reducing the rate of interest from four to three and a half, then to three and a quarter, and eventually to three, per cent. Not less useful were the funds of Savings Banks in the time of the Crimean War. By means of Ways and Means bills, the Chancellor of the Exchequer raised the necessary funds to meet the heavy demands, and thus effected an enormous saving of money, which would have been sunk in transacting a loan.

We have already made the reader acquainted with Mr. Gladstone's opinion on the right of the State to use the money entrusted to it for safe keeping; nothing could be more vigorous than his language already quoted. Mr. Gladstone endeavoured to carry a change in the law relating to the investment of Savings Bank moneys in 1855. He now, in the session of 1860, came forward and offered a bill to remedy some of the grievances complained of in the Committee. His proposals were now substantially the same as those of 1855. He voluntarily proposed to be shorn of his strength as Chancellor by the House agreeing to cancel Savings Bank Stock to the amount of thirty-one millions of pounds; and to open a new account for this money, to be called “State Deposit Account, No. 1,” virtually giving the money the fullest security of the State, and placing it entirely beyond the reach of his operations. The remaining amount, then about ten millions, Mr. Gladstone proposed should be allowed to be invested at the pleasure of the finance minister as heretofore. One would have thought that at any rate this bill would have been allowed to pass quietly; but it was not to be. The bill proposed was based on two of the recommendations of the Committee of 1858,—namely, those which suggested that the power of funding Deficiency and other bills should be done away, and that the dealings in the stocks should be under the review of the House; but members complained that a bill had not been prepared to embrace all the recommendations. Sir H. Willoughby and Mr. Estcourt took this view. In long speeches they both upheld the decision of the Committee, and asked for a bill dealing with the entire subject; the latter gentleman said that the “barren discussions in Parliament were acting to the prejudice rather than to the support of the excellent institutions with which they dealt. There were not above 600 of these useful institutions in the whole kingdom, whereas they ought to ramify through every parish and every village of the kingdom.” Mr. Malins and Colonel Sykes followed, and complained that Government should have neglected to deal with the entire subject. Mr. Gladstone made up for the lack of supporters by a long and able speech. He admitted that it was most desirable to have a bill for the management of Savings Banks, but the general subject had no relation to the mode in which the money of Savings Banks was invested. Better at the end of a session carry one or two points, and put an end to grievances which had been loudly complained about, than bring in a measure only to withdraw it again. He had been charged with ignoring the labours of the Committee. He had not done so, for the bill was founded on part of their labours; he had considered the report, “but consideration does not necessarily involve adoption.” He was compelled to decline many of the suggestions of the Committee. Where, however, he agreed with them, he had lost no time in taking action: hence the proposed bill. “From speeches of honourable gentlemen,” concluded Mr. Gladstone, “it might be supposed that a dreadful bill had been introduced, giving exorbitant powers to the Chancellor of the Exchequer. The fact is, however, that there is not a power given which he does not already possess, and in one or two respects the surrender of powers is very large.” “It is impossible that Savings Bank funds can now be used by Government as a trust; they must be reserved for the discretion of the House.” The bill for the first time gives a positive title in law to the deposits in Savings Banks, and it will further provide a true account,—“for nobody has ever yet seen a true account,”—of the National Debt; and for these reasons Mr. Gladstone hoped it would be allowed to pass into law. Mr. Thomas Baring, and Mr. Ayrton, unconvinced by the Chancellor's arguments, opposed the bill; and Mr. T. Collins contented himself, as usual, with dividing the House on his motion to throw it out. The motion was negatived by a majority of twenty-four, and there was a similar majority on a motion for adjournment made by Sir Henry Willoughby. On the 20th of July, 1860, the bill was considered in Committee, and the discussion was taken on the first clause—the existing stock to be cancelled—when Mr. Hubbard approved of the measure. By the bill the greater part of the money of Savings Banks, viz., that treated as a book debt, would be placed beyond the reach of jobbery. Sir Francis Baring spoke in favour of, and Sir H. Willoughby, Mr. Hankey, and Colonel Sykes again opposed, the clause. The opposition to the measure had gathered strength since the last occasion;[109] and on a division, the Savings Bank managers once more triumphed by a majority of 38, in a morning sitting and a House of 192 members.

A few days afterwards the Chancellor of the Exchequer proposed the fourth clause of the defeated bill, or that which gave the Commissioners an uniform power of holding and dealing with all stocks under Parliamentary guarantee, and stocks and securities, under whatever name, that constituted the National Debt. At present, Mr. Gladstone stated the Commissioners had power to hold Terminable Annuities, but no power to sell them. There ought to be a uniformity of power with regard to these securities, and this bill, which was founded on the fourth clause, gave it. He had only been induced to take the matter up again by finding an unanimous feeling in the House for this proposition. Mr. Estcourt, in speaking for the clause, hoped the Chancellor would soon bring in a measure on the general subject. So he did, soon afterwards, but not the kind of measure Mr. Estcourt desiderated. When this bill reached the Lords, it was rather violently opposed by Lords Monteagle and Redesdale; and on a division the voting was found to be equal. According to usage, the bill was thrown out. The Government, however, re-introduced the measure, “as a matter of urgency;” and though there was an outcry in the Lords against it, no less than in the Commons, for interference with what was considered a Money Bill, the clause passed, and received the Royal Assent on the last day of Parliament.