MORNING POST - January 2nd 1927
MUNICIPAL BANK DEFECTS
Finance Experts' Criticism
NO ADVANTAGE TO THE PEOPLE
Higher Management Expenses
Municipal banking enterprise is condemned without reservation in a Memorandum on the subject which has been submitted to the City Treasurer of Aberdeen by two expert financiers. It is shown, upon examination, and in the light of experience, to be both unnecessary and inefficient.
The Memorandum has been prepared by Mr James R Fiddes and Mr Leslie J Henderson, Joint Actuaries of the Aberdeen Savings Bank, at the request of the City Treasurer. They were asked to express their views on a proposal to establish a municipal savings bank in Aberdeen.
The proposal is dismissed for two general reasons, which it is claimed, apply with equal force to the particular case of Aberdeen. They are:
(1) That the establishment of a municipal savings bank would be of no advantage to the people, in that facilities for the practice of thrift were already plentiful.
(2) That there would be no advantage to the municipality, in that money required for municipal purposes would not be provided on more favourable terms than could be obtained by borrowing in the open market.
"The primary object of the establishment of municipal savings banks, as originally conceived," the Memorandum states, "was the encouragement of, and provision of facilities for, the practice of thrift. Recently, however, it has become apparent that the advocates of this form of municipal activity have been influenced more by the advantages which might possibly accrue to the municipality than by consideration of the benefits which might result to individual members of the community."
It is pointed out in the Memorandum that many agencies for the encouragement of thrift already exist - the Friendly Societies, Trustee Savings Banks, the Post Office Savings Bank, the National Savings Committee, as well as railway, naval, and military savings banks and building societies - and that, in order to succeed, a new entrant into the field must offer greater advantages than those already provided. The average yield to depositors with these agencies is calculated to be slightly over 3½ per cent., and they are subject to State control.
"It will be agreed, therefore," the Memorandum adds, "that a new thrift agency must offer security as good as that of the British Government, and that the rate of interest cannot be less than 3½ per cent. per annum."
In spite of the happy auspices under which the Birmingham bank started, it is shown - from its own figures - that with deposits of £6,800,000 the expenses for management must be about 14s. 4d. per cent. In contrast to this the following table relating to trustee savings banks is given:
£ Per Cent.
Glasgow 21,600,000 4s. 8d.
Edinburgh 9,800,000 4s. 8d.
Manchester 9,100,000 6s. 9d.
Liverpool 7,400,000 5s. 1d.
Aberdeen 5,400,000 4s. 10d.
A quarter per cent. is estimated to be the minimum provision necessary for reserve in the case of a municipal bank, where the main source of income is derived from a municipality desirous of obtaining money on the most favourable terms. The loss due to the necessity of maintaining a liquid balance is estimated to be 3s. 9d. per cent.
From this, it is argued that the minimum interest which the municipality would require to pay to the bank for money would necessarily be at least £4 13s. 1d. per cent.
BIRMINGHAM GAZETTE - January 13th 1927
Criticism of Birmingham's Example
The Finance Committee of Aberdeen Town Council, having been requested to consider and report upon alternative means of financing the many schemes of public works now in course of construction or under consideration, made special reference to the expediency of establishing a municipal bank, on lines similar to that in operation in Birmingham.
In this connection the City Treasurer has obtained a memorandum from Messrs. J R Fiddes and R L J Henderson, joint actuaries of the Aberdeen Savings Bank.
They state that, in comparison with the Trustee Savings Banks, the cost of conducting the Birmingham Municipal Bank seems extraordinarily high. It is remarked that had a municipal bank been in operation throughout the coal areas during the last six months they would almost certainly have found difficulty in meeting the demands of their depositors, and it is held that the establishment of a Municipal Bank in Aberdeen cannot be justified as a thrift agency, the field being already amply covered.
Money raised through such a channel would be costly, and the assumption by a Corporation of such new and heavy responsibilities would be fraught with danger to the community at large and to the bank's depositors.
THE FINANCIAL NEWS - January 13th 1927
MUNICIPAL BANKING USELESS
Judgement of Aberdeen
At the present moment a Treasury Committee is considering the problems presented by municipal banking. The time is, therefore, propitious for the publication in the form of a pamphlet of the views of Messrs. Fiddes and Henderson, the joint actuaries of the Aberdeen Savings Bank, as to the desirability of establishing a municipal bank in Aberdeen. The views of a competitor in the good work of stimulating thrift must naturally combine sympathy in principle, with keen scrutiny in details, a point of view admirably suited to consideration of the problems of municipal banking. The argument of the authors of the pamphlet is that, in view of the number of existing facilities for saving, such as the Post Office and Trustee Savings Bank, there is no crying need for the new municipal institutions.
With, let us hope, conscious humour, Messrs. Fiddes and Henderson declare that: "It is evident that the establishment of a Municipal Bank in Aberdeen cannot be justified. As a thrift agency it is unnecessary, the field being already amply covered." They dogmatise on a matter of wider significance when they say that: "Money raised through such a channel would be costly, and the assumption by a corporation of such new and heavy responsibilities would be fraught with danger to the community at large, and to the bank's depositors."
It is indeed difficult to escape from the dilemma; either the preservation of a liquid position and earning high rates of interest, such as consideration for the depositors demands, will make the bank of no material assistance to the treasurer of the corporation, or the bank will finance the corporation by sacrificing the interests of its depositors.
"The first duty of a bank is to ensure that its investments are safe and readily convertible into cash. It must see that its investments are widely spread and, for its own protection, that deposits are drawn from as wide an area as possible. By this means the bank lessens the danger not only of loss on investments, but of sudden exceptional calls on the deposits, which in turn necessitates forced realisations of securities. Those dangers which every well-conducted bank strives to avoid are inseparable from a municipal bank.
"Its investments are in undertakings such as water schemes, housing, gas undertakings, etc., just such as are least realisable. It is proposed to finance them by deposits repayable at call or on the shortest notice - deposits drawn from a limited area and involving the maximum danger to the bank. Had municipal banks been in operation throughout the coal areas during the last six months they would almost certainly have found difficulty in meeting the demands of their depositors."
ABERDEEN FREE PRESS - January 13th 1927
The joint actuaries of Aberdeen Savings Bank, in an able and closely-documented memorandum, have administered a timely and convincing snub to the advocates of a municipal bank for this - or indeed for any normal - city. For some reason which has never been divulged, the Aberdeen Town Council recently remitted to the Finance Committee the question of the establishment in Aberdeen of an institution similar to the Birmingham Municipal Bank; and the City Treasurer naturally approached the authorities who, from their local knowledge, the kind of their technical experience, and the fact that their bank is not a private concern, must be credited with having the highest claim to respect in such a matter. Their answer is an emphatic negative. It could not well have been otherwise. Those who advocate a municipal bank in a city like Aberdeen, which has its flourishing Savings Bank, not only cannot produce any credentials entitling them to be regarded a financial experts, but have also proved by their adherence to theory unsanctioned by practice that their opinions on any subject connected with local administration are worthless. In 1694 Daniel Defoe advocated municipal banks. Daniel was an adroit and resourceful pamphleteer, and it would be ungrateful to refrain from paying tribute to the author of "Robinson Crusoe" and "Moll Flanders." But, though a man happens to have been in the forefront of the pioneers of fiction, his literary distinction does not extend to the more material but no less essential forms of human activity; and we know of nothing in his life or writings which implies that the good Daniel was a great financial genius. Defoe, however, was aware - perhaps from personal experience - that the private banks of his day put out their money at extortionate rates of interest; and he wanted to see public bodies and private individuals able to borrow that money more cheaply. He was in a position not unlike that of many trade unionists to-day, who are levied several shillings per week to pay salaries to officials who exist to create industrial strife.
In Defoe's day there were no Savings Banks. The Aberdeen memorandum clearly shows that, in ordinary circumstances, a municipal bank could not give more encouragement to popular thrift than the existing Savings Banks, nor could it lend money to its Corporation more advantageously than these Savings Banks. The latter provide their depositors with an average of 3½ per cent. interest, and they cater for all classes of people. The amount of money saved in Great Britain through the intermediaries of Savings Banks and Savings Associations is the paramount security of the State. Municipal security can never be more tempting than that, and to erect a municipal bank in competition with the Savings Bank is a proposal so utterly nonsensical that it could have only emanated from a Socialist's brain. The other side of the argument is that a municipal bank could supply its Corporation with money for municipal schemes at a rate cheaper than anything another lending institution could ask. But the Aberdeen memorandum shows that this is another fallacy. Aberdeen Savings Bank lends to the Corporation at 45/8 per cent., whereas a municipal bank, if established now and competing successfully against the Savings Bank, could not exact less than about 5 per cent. from the Corporation. It is unfortunate that the fullest details of the working of the Birmingham Municipal Bank have not been made available, but the two main facts concerning it are that it has no Trustee Savings Bank competing against it, and that it cannot lend to the City of Birmingham so cheaply as Aberdeen Savings Bank does to the City of Aberdeen.
BIRMINGHAM GAZETTE - January 18th 1927
MUNICIPAL BANK CRITICS
Sir Percival Bower's Reply
Sir Percival Bower, chairman of the Birmingham Municipal Bank, issued replies yesterday to many points of criticism relating to the objects and expenses of management.
One general criticism was that while the primary object of establishing municipal banks was the encouragement of thrift, recently it had become apparent that advocates of them had been more influenced by advantages which might accrue to the municipality than a consideration of the benefits which might result to individual members of the community.
Sir Percival Bower describes this statement as an amazing one. Birmingham, he says, has never urged that the advantages of such a bank to the municipality should be placed in front of the value of the institution from a thrift point of view. Birmingham, however, was convinced that money earned and saved in its own city should be available for use in its own city so long as there were adequate safeguards to secure that the depositors in the Bank could always have their money when they required it, and the ability of Birmingham to discharge its ability in this respect was not in question.
The statement that a municipal bank must pay depositors 3½ per cent. was not of necessity correct. Birmingham paid 3½ per cent. because it was able to do so, but the matter was one entirely for each municipality to settle for itself.
Replying to another point of criticism, Sir Percival Bower said it was sought to prove that the percentage of expenses of management to deposited funds equalled 14s. 4d. in Birmingham, as against an average of 5s. 2d. per cent. for the Savings Banks. After deleting the Government Stock from the Trustee Savings Banks, the figure of 5s. 2d. became 6s. 7d.
The figure of 14s. 4d. had been arrived at by bringing into account items which had been assumed to be management expenses, but which included, in fact, non-recurrent expenditure, such as the opening of new branches.
There was scarcely a comparison between the Municipal Bank and a Trustee Savings Bank on the question of management expenses, because the Municipal Bank had substantial normal expenditure in connection with the house purchase department, which did not apply in a Trustee Savings Bank.
The management expenses for the year ended March, 1926, worked out at 9s. 11d. per cent to the total standing to the credit of depositors, viz., £6,799,511, but when the house purchase expenditure was deleted the figure of 9s. 11d. was reduced to 9s. 3d.
BIRMINGHAM GAZETTE - January 18th 1927
EX-LORD MAYOR AND HIS KNIGHTHOOD
Why He Accepted It
RECOGNITION FOR CITY AND PARTY
A reply to his critics was made by Alderman Sir Percival Bower at a dinner given in his honour at the White Horse Hotel, Birmingham, last night, by personal friends and associates.
Sir Percival said he would like to deal with the criticism to which he had been subjected from a certain section of his own party.
He had been accused of not being "red-hot enough."
No man privileged to be Lord Mayor of a great city, however, should enter that office unappreciative of the fact that he represented not only his own party but the citizens as a whole. During his two years of office he had been peculiarly conscious of the fact that not only he but the whole Labour movement was on its trial. Had he failed as Lord Mayor to discharge his duty to the city as a whole he would have deserved not only the condemnation of all Birmingham but that of the Labour movement.
There were people in the Labour movement who thought that, because his political opponents spoke well of him, he must necessarily have played false to his political friends.
He had played no one false, but merely endeavoured to fulfil his conceptions of his office.
There were others who criticised him because he had accepted a Knighthood.
"I accepted that honour," said Sir Percival, "not because I wanted a handle to my name, but because I regarded myself as being, for the moment, the medium through which recognition might be given to the city and to my party.
"In any case, however, if my friend object to the title - well - I hope they will always regard me as 'Percy Bower'."
Sir Percival added that the time must come when a Labour Government would achieve Parliamentary power. When that day arrived he would be sorry if the Labour Government was niggardly in recognising services given self-sacrificingly and without thought of self-aggrandisement. He could not imagine a State that precluded the honouring of such self-sacrificing service.
"Birmingham has enjoyed the services of many eminent men as Lord Mayor. I venture to say, however, that none has ever filled the office with greater ability or dignity, or with greater satisfaction to the city, than did Sir Percival Bower."
This observation was the keynote of the tribute paid to Sir Percival by the present Lord Mayor (Alderman A H James, CBE, JP) who presided at the dinner.
Alderman James said that 1919 was a fortunate year for Birmingham, for it brought to the City Council, Sir Percival Bower. His rise to fame had been rapid and thoroughly deserved. He had received many honours in tribute to his service to the city.
One of the greatest privileges of his public life had been the enjoyment of Sir Percival's friendship despite their political differences. Sir Percival had the great quality of being able to attack fiercely another man's views and yet remain that man's friend.
"What I admire about Sir Percival," continued Alderman James, "is that, in spite of the honours that have been showered upon him, he remains the same modest and charming man. I trust that the city will long enjoy his services."
The vote of thanks to the Lord Mayor was moved by Mr F Horton Lones, and a delightful entertainment was given by Messrs. P C Dalley, R Narrish, J Leng, Wally Walters and (at the piano) G Ridding.