Many associations, organisations, and private individuals have explored this question of Municipal Banks and furnished interesting
reports from time to time, but there are two bodies in particular which by their constitution and their knowledge are entitled to
a respectful hearing, viz., the Association of Municipal Corporations, and the Institute of Municipal Treasurers and Accountants.
These two important bodies devoted much time and thought to the matter before issuing their reports and recommendations and they can
safely be taken as conveying the Municipal point of view.
In October, 1922, the Association of Municipal Corporations
appointed an influential committee to consider the question, such committee consisting of the following members:
Councillor Appleby (Birmingham)
Alderman Hey (Halifax)
Alderman Dawson, J.P. (Huddersfield)
The Rt. Hon. Alderman Bramble, J.P. (Newcastle-on-Tyne)
Alderman Simpson, J.P. (Sheffield)
Williets, J.P. (Smethwick)
The Town Clerk of Bristol
The Town Clerk of Derby
The Town Clerk of Rotherham
The City Treasurer of Bradford
The Borough Treasurer of Swansea
report of the special committee was presented by Alderman Simpson of Sheffield, a chartered accountant by profession, and a gentleman
well qualified to handle the subject. His trained mind enabled him to form, with reliability, his own opinions of the Birmingham Bank,
which he closely investigated. The report, which was adopted, includes the following recommendations:
We have given the matter very
careful consideration, and in our opinion it is desirable that further steps should be taken to provide facilities for the saving
of money with a view to encouraging habits of thrift and that having regard to the fact that in many parts of the country no such
facilities exist beyond the post office savings bank, we recommend the Association to press upon the Government the desirability of
passing a general Act enabling Municipalities, subject to proper safeguards, to carry on, if they so desire, Municipal Savings Banks
upon the lines of the Bank carried on by the Birmingham Corporation, and to enable such Banks to make advances to their depositors
on house property.
It is obvious that an undertaking of this character cannot be carried on on a small scale and the power should not
therefore, we think, be conferred except upon a town having a population of not less than 15,000, or upon a combination of local authorities,
of which at least one should be a Municipal Corporation, having that population within their combined area.
The questions of the rate
of interest to be paid by the Corporation upon money invested with them by the Bank and of the rate of interest to be paid to depositors
are of vital importance, and we suggest that in regard thereto the following rules should be observed:
(a) That upon any funds lent
to the Corporation, the Bank, as the lender, should receive not less than the rate of interest being paid by the Corporation to private
lenders under similar conditions as to repayment;
(b) That while the rate of interest allowed to the depositor need not be restricted
to the same rate of interest as that payable on the post office or other savings Banks, it should nevertheless be such as will leave
a sufficient margin when deducted from the rate of interest earned by the deposited funds of the Bank, to pay the working expenses
when the Bank has become properly established. There would be no justification for carrying on a Municipal Savings Bank in such a
manner as constitutes a charge on the rates, and it ought, after a short period for getting into working order, be self-supporting.
Any profit should be devoted in the first place to strengthening the financial position of the Bank, and when that position is deemed
to be sufficiently secure, it should be devoted either to the development of the business or to the improvement of the interest allowed
to investors. It should not be devoted to relief of rates.
We recommend that a representation be made to the Ministry of Health on
the lines of this report and that they be requested to initiate legislation on the subject.
An equally important professional
body examined the subject on behalf of the Institute of Municipal Treasurers and Accountants in 1923, such body consisting of:
The Chamberlain and Treasurer of Plymouth
The Borough Treasurer of Bolton
The Consultant Treasurer
of Birmingham (Mr. Arthur Collins)
The Borough Accountant of Brighton
The Borough Treasurer of
The Borough Treasurer of West Hartlepool
The Borough Treasurer of Bootle
The Borough Treasurer of Blackpool
The Borough Treasurer of Kensington
The City Treasurer of Newcastle-on-Tyne
The Borough Treasurer of Halifax
The Borough Treasurer of Acton
The City Chamberlain of Edinburgh
The City Treasurer of Bradford
Their report was introduced by Mr. Arthur Collins, than whom no greater authority could have been
found. Through his official connection with Birmingham, as its city treasurer, he had been brought into close touch with the Municipal
Bank; he knew its inner workings; he was conversant with its progress and development, in which he had taken a prominent part. Mr.
Collins expressed the view that Municipal Banks should be limited to towns, or a group of districts, which would cater for a population
of 150,000 or over. The report of the Executive Council, which was adopted, makes the following recommendations:
The Council think
it may be helpful to indicate certain broad principles upon which, in their view, Municipal Savings Banks should be founded, and amongst
the most important of these may be mentioned the following:
(a) The establishment of a Municipal Savings Bank should not be regarded
as having for its primary object the raising of money for Municipal capital expenditure, but rather the provision of facilities for
the exercise of thrift under the best and most remunerative conditions, with the same facilities to the local authority for making
such use a part of the accumulated funds as those suggested herein for trustee savings banks.
(b) The Municipal Savings Bank should
be regarded as entitled to obtain within the range of trustee securities the best possible return on its investments.
(c) That upon
any funds lent to the Corporation the Bank, as the lender, should receive not less than the rate of interest being paid by the Corporation
to private lenders.
(d) That there should be no indirect subsidy given to the Bank in the form of free accommodation or service and
that all beneficial users of buildings, staff, etc., be costed for inclusion in the working expenses of the Bank.
(e) That while the
rate of interest allowed to the depositor need not be restricted to the same rate of interest as that payable on the Post Office or
other savings banks, it should nevertheless be such as will leave a sufficient margin when deducted from the rate of interest earned
by the deposited funds of the Bank, to pay the working expenses when the Bank has become properly established.
(f) That notwithstanding
the fact that the savings Bank will have behind it the guarantee of the Municipality, it will be necessary in investing the funds
of the Bank to follow the usual practice of other banks and exercise such care and caution in arranging investments as will ensure
the Bank carrying liquid assets sufficient to meet any emergency such as an unexpected run on the Bank.
The greatest importance should
be attached to the psychology of the small investor who is most sensitive to anything which may appear to affect the security of his
capital. The same cautious and conservative policy followed by the best trustee savings banks can therefore advantageously be followed
by Municipal Banks in order not only to secure and maintain the public confidence, but to take no risks of injuring the whole of the
agencies catering for thrifty people.
It should also be recognised that in towns where a Municipal Savings Bank is established in favourable
circumstances it is probable that for the first two or three years the standing charges of the Bank will not be covered by the income
represented by the difference between the interest paid to depositors and the interest earned by the Bank on invested funds.
a Municipal Savings Bank should, after a short period for getting into working order, be self-supporting. Any profit should be devoted
in the first place to strengthening the financial position of the Bank, and when that position is deemed to be sufficiently secure,
it should be devoted either to the development of the business or to the improvement of the interest allowed to investors. It should
not be devoted to relief of rates.
These reports and recommendations are sufficiently strong in themselves to call for
no further comment. They give a lead to Municipalities generally and to Parliament in particular.