The distinctive duties of savings banks, whether postal or other, are such that they can hardly be considered as part of the banking system of England. A savings bank, as they are understood in this country, performs only one
side of the banker's function, and that perhaps the least important. It is the business of a banker to make ad- vances, to create credit, and in England to provide the community with currency. None of these functions are fulfilled by the savings banks. It is also the business of the banker to take care of money deposited with him by the community, and this part of his function the savings banks do carry out. They are guardians, trustees, safe deposits, but they are not banks in the true sense of the word, because theydo notmake loansand advances, they do not discount bills, they do not facilitate trade and finance by the creation or circulation of any credit instru- ment, and the sole use that they make of the funds deposited with them is to invest them in securities of a specially restricted class. At the same time, they have someindirect influenceupon the conduct of banking busi- ness in Great Britain, since the allowance that they make
to depositors has an effect, especially in the country dis- tricts where the banks compete keenly for deposits, upon the allowance made by the English banks. It is com- plained by the joint stock bankers that whatever bank
rate may be, and whatever may be the rate for money in
London, they can not allow their country depositors less
than the 2\ per cent which is the regular allowance to depositors in the post-office savings banks. It is natural
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The English Banking System
enough that the bankers should therefore complain bitterly of the intrusion of Government into a business which it does not understand and which it conducts according to principles which would land any ordinary banker very speedily in ruin. The post-office savings
bank keepsno attemptat a cashreserve, perfectly reason- ably contending thatthe fact that its deposits are secured uponthe consolidatedfundofthe UnitedKingdominsures for it a confidence and security which ordinary bankers have to arrive atby meansof astrong positionwith regard to cash and liquid assets. At the same time, the savings banks, whateverbe the current price ofmoney and what- ever the difficulties they have in reinvesting funds de- posited with them on terms which will enable them to
show aprofit, continue to pay 2| per cent to their deposi- tors. They did so during the period of abnormally cheap
money in 1896 and 1897, when Government securities could not be bought to yield the 2 J per cent which the savings banks were paying, and when consequently the necessarily considerable expenses of the conduct of the business involved the savings bank in heavy loss. They havecontinuedtodoso steadily, in spite ofthesubsequent depreciation of Consols and theother securities that they hold, which reduced their finance to a position which would be considered one of insolvency if any private or joint stock company had to acknowledge such a state of affairs.
Their ostensible pretext, the encouragement of thrift
among the working classes, is an extremely desirable object in England, where thrift among the working
classes is very much to seek. At the same time, the 59
contention of the bankers that they are subjected to unfair competition isvery strongly grounded. The regu- lations of the post-office savings banks have been ex- panded to an extent which permits the deposit of sums up to £50 in one year, aggregating £200 altogether, and
it is clear that depositors who are in a position to make
deposits on such a scale as this have arrived at a point at which assistance and stimulation by the State are unnecessary. The rate allowed to them, though low enough from the point of view of the depositor, is cer- tainly high when the exceptionable nature of the security
isconsidered and whenallowance ismadeforthefactthat these deposits can be withdrawn at any time— immedi-
ately up to £10 if theexpense of a telegram is paid, and
after one to two days' notice in the ordinary course of business. Infact,the post-officesavings bank gives away one kind of banking facility, that is, the guardianship of the money of depositors, allowing them a rate for its use on terms with which the ordinary bankers are quite unable to compete, and it is very fairly contended that the amount that each depositor is allowed to place with the savings banks should be reduced, and that the rate allowed should also be brought more closely into touch with the modern conditions of the money market. Prob- ably the really careful and thrifty members of the class for which the post-office savings bank is designed to pro- vide facilities attach very little importance to the rate paid to them. Certainly other banks working under ordinary commercial conditions could not afford always to pay depositors 2| per cent on their money, with the right of immediate withdrawal, and their complaints
60
The English Banking System
against unfair competition by the State thus have a considerable basis of foundation.
The trustee savings banks wereoriginally philanthropic institutions founded by private persons for the encour- agementof thrift,butin 1817 Parliament intervened with regulations for their management. The most important feature of these regulations was the obligation imposed on the trustees to invest the whole of the funds with the Government through the hands of the national debt commissioners. Since theestablishment of the post-office savings banks in 1861 many of the trustee banks have beenclosed, and the increase in the deposits of the rest has not been nearly as rapid as that of the new rivals,
which have the advantage of more direct Government
control.