Summary of
Correspondence between
Neville Chamberlain and J P Hilton:
Document produced by the Bank's Chairman and enclosed with a letter to Neville Chamberlain dated January 17th 1927

The reply of the Chairman of the Birmingham Municipal Bank

(Alderman Sir Percival Bower) to the Article in the "Morning Post" for January 2nd 1927.



 The article is headed "Municipal Bank Defects", and reference is prominently made to the Birmingham Municipal Bank. It is stated that the management expenses of a Municipal Bank would be higher than those of a Trustee Savings Bank.


The article is the result of a memorandum prepared by the Joint Actuaries of the Aberdeen Savings Bank at the request of the City Treasurer of Aberdeen, and the "Morning Post" seek to make out that the two Joint Actuaries concerned are "expert financiers." It is passing strange that the City Treasurer has such little faith in the ability of the financial officers to the Aberdeen Corporation, that he must needs ask outsiders to examine and criticise the accounts of a department of another municipality, and it is equally strange to find two representatives of a Trustee  Savings Bank being requested to report on the possibilities of founding a Municipal Bank in their own area.


The two critics, who are described as "Joint Actuaries of the Aberdeen Savings Bank" have not long held their posts. The term "Actuary" as used in connection with a Trustee Savings Bank is a misnomer, and is not to be confused with professional actuaries such as the large Insurance Companies employ and professional actuaries in private practice. The actuary of a Trustee Savings Bank, as a rule, reaches his position, and assumes that title, through stages of promotion from an ordinary Savings Bank clerk.


According to the  "Morning Post" the proposal to establish a Municipal Savings Bank in Aberdeen is dismissed for two reasons:


1. That it would be of no advantage to the people, in that facilities for the practice of thrift

    are already plentiful;


2. That it would be of 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.


In reaching their conclusions it is evident that the two critics do not understand what Is meant by a Municipal Bank, and as the only such Bank in existence is in Birmingham, it is permissible for Birmingham to state the case. In the first place, the Bank is a department of the Council's activities, and combines the functions of a Savings Bank with those of a Building Society, while it further collaborates with other departments in the collection of Corporation accounts such as gas, water, electricity, and rates. Having established that fact, it will be realised that comparison with a Trustee Savings Bank can only be carried up to a certain point.


Dealing, with the first of the two reasons given above, a question of fact has to be decided, but the reason given by the critics is merely their opinion. The citizens of Aberdeen, as represented by their elected Members, are the only people who can determine this question, and it is within their power  to so determine it. The argument that sufficient facilities already exist could have been applied with equal force when the National Savings Certificate System was established, but Aberdeen, like other towns has seen fit to use the National Savings Certificate System, and it would have been rather remarkable had it not done so. He would be a bold person today to suggest that the National Savings Certificate System should be abolished, and it cannot be thought that even these two critics would go so far as to suggest it. In like manner, we question their competency to decide whether facilities are "already plentiful" or not.


With regard to the second reason, a more ridiculous statement could not be made. We know that as a result of establishing a Municipal Bank the Corporation of Birmingham does obtain money for municipal purposes on more favourable terms than can be obtained by borrowing in the open market.


The "Morning Post" goes on to say that the primary object of establishing Municipal Banks was the encouragement of thrift, but that recently it has become apparent that advocates of Municipal Banks have been more influenced by advantages that might accrue to them than a consideration of the benefits which might result to individual members of the community. Exactly what is meant by this statement is difficult to follow but it is an amazing statement. The object of the Birmingham Municipal Bank is set forth in its Regulations. The Birmingham Municipal Bank does make its first object to provide facilities for the practice of thrift, and 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, but Birmingham does contend that having discharged its liability to the full to depositors by paying them the rate of interest agreed upon, any further advantage there may be should accrue to the municipality, and should not go to the State, as is the case, to a very large extent, with Trustee Savings Banks. In short, Birmingham is convinced that money earned and saved in its own City should be available for use in its own City so long as adequate safeguards are there to secure that the depositors in the Bank can always have their money when they require it, and the ability of Birmingham to discharge its liability in this respect is not in question. Any advantage which a municipality may get as the result of establishing a Municipal Bank may surely be passed on to the individual members of the community, and if the two critics appreciated the incidence of local taxation they would never have subscribed to the view which is given expression to in the "Morning Post".


The next point mentioned In the "Morning Post" relates to existing thrift agencies, and refers to Friendly Societies, Trustee Savings Banks, Post Office Savings Banks, National Savings Committees, Railway, Naval and Military Savings Banks, and Building Societies, and it is pointed out that in order to succeed a new entrant into the field must offer greater advantages than those already provided. The paragraph further goes on to state that "the average yield to depositors with these agencies is calculated to be slightly over 3%''. Again, a more amazing statement could not have been put forward than that embodied in this paragraph. In order to bolster up a case for opposing municipalities the various Societies and Banks referred to are quoted, and by taking the rate they allow to depositors and averaging  them, the ingenious figure of 3% is arrived at. It is well-­known that Building Societies offer rates considerably in excess of 3%, as do also National Savings Committees; but let us look at Aberdeen's case. In their Report for 1925 one finds that 62,405 depositors in their Ordinary Department are only receiving 2%, and that 7,406 depositors are receiving 3%. It is very surprising that reference should be made to the various organisations in this connection, particularly the reference to Railway, Naval and Military Savings Banks, because it is doubtful whether these apply with any force to Aberdeen. It is therefore, clear that the object underlying such a reference is to attempt to discredit Municipal Banks and to bolster up the opposition by inserting figures and using the higher rates allowed by Societies other then the Aberdeen Savings Bank, so that their low rate may be to appear higher than it is.


The next point made is 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 3% per annum. So far as the question of security goes, we in Birmingham consider the security of the Corporation to be as good as the security of the Government, and we would prefer that our money should be in the control of those who  are elected for the purpose of managing the City's affairs. In this way the depositors have a direct influence and an added interest in a Municipal Bank, which is entirely absent from a Trustee Savings Bank as the Trustees are not appointed in a democratic way by the depositors. The Trustee Savings Bank is practically an agency for collecting money for the benefit of the Government. The Government, with an extraordinary magnanimity, allow the Trustee Savings Banks 2. 17. 6d per cent for acting as their Agents, and this results in the depositors receiving only 2. 10. -d. per cent, and so long as the working people are content to receive a rate of interest which was fixed ages ago, so long will they have to put up with the conditions. The statement that a Municipal Bank must pay 3% per annum is not of necessity correct.


Birmingham pays 3% because it is able to do so, but the matter is one entirely for each individual municipality to settle for itself. Some municipalities may decide upon a lower rate, while it is not inconceivable that others may take the Birmingham rate or even go beyond it. All municipalities are presumed to have competent financial advisers, and amongst their elected representatives can be found men of high standing in the financial and business world who can be safely trusted to see that prudent finance is observed. A wise municipality would be guided by these men and their financial officers in fixing the rate of interest which should be allowed to depositors.


The next point mentioned in the "Morning Post" is that Birmingham established its Municipal Bank in 1916. This must be qualified by the statement that Birmingham conducted a wartime Bank under the provisions of a Government Act, from 1916 to 1919, but wound up the same because of the impossible conditions which that Act laid down, and owing to the fact that it had of necessity to come to an end when the War was over; but having had clearly demonstrated to it by the working classes of Birmingham that a Municipal Bank was the institution they desired, Birmingham promoted its own private Bill and obtained powers to set up the present Municipal Bank in 1919.


The "Morning Post" then seeks to demonstrate that the management expenses of a Municipal Bank are higher than those of a Trustee Savings Bank, and again in order to bolster up a case, inflated funds of five selected Trustee Savings Banks are quoted. The funds quoted in respect of these Trustee Savings Banks include the amount which is invested in Government Stock and Bonds, and which has left the coffers of the Savings Bank, and therefore is not money which the Savings Banks would have to find for the depositors in case it was wound up. Investment through the Government Stock Department is exactly the same as investment in War Loan, etc. through the agency of the Postmaster General: there is certain bookkeeping done and records kept at all Trustee Savings Banks, but the money has gone definitely into Government Stock and Bonds, and can be realised at any time by the individual owners. In Birmingham we deal with this matter in a different way. Depositors desirous of investing savings in Government Stock do so through a stockbroker, the Municipal Bank giving all necessary assistance, but such investments are not included in the funds of the Birmingham Municipal Bank. If such investments were added to Birmingham's figures a different set of accounts would result, but there is no object in setting up a false position in this matter. In the case of Glasgow the holding in British Securities in 1925 is shown to be 3,226,771, in Edinburgh 2,262,251, in Manchester 1,704,073, and in Aberdeen 1,384,086. The deletion of these figures from the total deposits stated by the "Morning Post" affects the percentage of management expenses to a very important extent.


It is sought to prove that the percentage of expenses of management to deposited funds equals 14/4d in Birmingham as against an average of 5/2d per cent for the Savings Banks. After deleting the Government Stock from the Trustee Savings Banks, the figure of 5/2d becomes 6/7d.


The figure of 14/4d has been arrived at by bringing into account items which have been assumed to be management expenses, but which include, in fact, non-recurrent expenditure. The Birmingham Municipal Bank has been extending its activities by continually opening branches since its commencement, and the expenditure on that account has naturally been heavy, but it cannot be regarded as normal management expenses. There are 38 branches actually at work in the short space of seven years, and further branches are in the course of being provided. Trustee Savings Banks have never attempted to extend their business by the creation of branches to anything like the same extent; in fact the majority of Trustee Savings Banks have no branches at all. The Glasgow Trustee Savings Bank has the largest number of branches, but even in their case it would appear they had only 18 branches in 1925 and contemplated opening 2 more.


There is scarcely a comparison between the Municipal Bank and a Trustee Savings Bank on this question of management expenses, because the Municipal Bank has substantial normal expenditure in connection with the House Purchase Department, which does not apply in a Trustee Savings Bank. The management expenses for the year ended March 1926 work out at 9/11d per cent to the total standing to the credit of depositors, viz. 6,799,511, but when the House Purchase expenditure is deleted the figure of 9/11d is reduced to 9/3d.


It is rather surprising that this method of comparison has been resorted to, because it again shows the object of the critics was not to be fair, but to be distinctly unfair. It was the practice of the Government to publish a detailed return to Parliament of the transactions of each Savings Bank and to show the cost per transaction of the working of such a Bank. The Government, on economy grounds, abandoned the printing of the return referred to, so that the figures can only be worked out from the balance sheets of the different banks. Taking the 1925 figures (the latest available) as a basis, one finds that the cost of working the bank per transaction is as follows:

                                      No. of                                 Management costs

                                   Transactions.                       per transaction.


Aberdeen                    298,604                                       10.53

Edinburgh                   555,253                                          9.93

Glasgow                    1,760,486                                         6.88

Manchester                  657,439                                       11.18

While the figures for Birmingham Municipal Bank are:

No. of transactions 1,270,811.     Cost per transaction  6.69d

This explodes the theory that a Municipal Bank is more expensively managed than a Trustee Savings Bank.


The "Morning Post" goes on to state that "% is estimated to be the minimum provision necessary for a reserve in the case of a Municipal Bank." This estimate springs entirely from the two critics. We know nothing, in Birmingham, of an opinion ever having been expressed on the subject. The critics appear to have the impression that the Birmingham Municipal Bank is a separate entity from the Corporation, whereas it is nothing of the kind. It is part and parcel of the Corporation's activities. The Municipal Bank has never been a charge on the rates and a substantial reserve fund is being built up to guard against any possibility.


Another statement which hardly calls for an answer is that "the loss due to the necessity of maintaining a liquid balance is estimated to be 3/9d per cent." What is in the minds of the critics passes comprehension. The Birmingham Municipal Bank is sufficiently alive to look after its own interests in this respect, and obtains quite a satisfactory rate of interest on the balances retained at the Joint Stock Banks.


The last point dealt with in the "Morning Post" is the argument that "the minimum interest which the municipality would require to pay to the bank for money would necessarily be at least 4. 13. 1d. per cent." This is equally ridiculous. Birmingham has a sufficiency of financial brains amongst its elected representatives and the officers employed by the municipality to see to it that the Corporation does not pay for its money at a higher rate than it can borrow from outside sources, and it is not likely to see advice from any other direction. The arrangement as between the Municipal Bank and the City Finance Committee in respect of investment of funds, is a mutually satisfactory one, and is reviewed from time to time.


Having dealt with the article there only remains to comment on the leader of the "Morning Post", and one observes, with regret, that that newspaper has apparently such little faith in the principle of local government that it infers that the municipality would be tempted to place its investments in such a way as to jeopardise a Municipal Bank, and contribute to what is described as "dangerous finance". Whilst the "Morning Post" admits that Birmingham guards against this danger, the inference is that any other town might not do so. Such a view is deplorable. If a municipality is not capable of working successfully a Municipal Bank, it ought not to be charged with the heavy responsibilities of looking after the finances of the town, (often running into millions of money) or the administration of other important and essential services.


Birmingham has demonstrated for over 7 years that a Municipal Bank can be run satisfactorily and on sound lines, and even the "Morning Post" admits that it has a large and flourishing Municipal Bank. It is catering for the working people as is proved by the fact that 97.3 per cent of the depositors have accumulated balances below 250.


There is a growing volume of public opinion throughout the Country in favour of Municipal Banks, and it is this growing volume which has doubtless led to the setting-up of a Government Committee to enquire into the matter. It is a pity that the enquiry could not be allowed to proceed in its own way without an agitation being started to prejudice municipal activities in this direction. The question has been explored by many bodies and by expert financiers of higher standing than the critics at Aberdeen. The Association of Municipal Treasurers, representing the whole Country, have reported in favour, the Association of Municipal Corporations have reported in favour, and a Government Committee in 1919, after taking evidence, likewise reported in favour of Municipal Banks. Some municipalities have applied to Parliament for power to set up Municipal Banks, but their applications have been turned down by the Local Legislation Committee on the ground that further experience of the working of the Birmingham Bank was desirable before granting powers to other parties. In the last case of Stoke-on-Trent, the proposal was only lost by one vote, and it will indeed be difficult for this Government, or any other Government, to continue to refuse the wishes of the people as expressed by the elected representatives, without giving an adequate reason.


It is surprising in another sense to find this agitation against the establishment of Municipal Banks springing up at the present time. If there is anything in the contention that a Municipal Bank cannot succeed in a town where a Trustee Savings Bank is already established, there is no need to make so much fuss about it. The working people will soon decide the point for themselves. If a Municipal Bank is not wanted the people will not support it. Neither Trustee Savings Banks, nor any other body, should deny to the citizens of any town the right to have a Municipal Bank if they desire to have one.


Birmingham is well known for the quality of its municipal administration, and while it takes pride in having developed civic patriotism to a high degree, it does not think that civic patriotism cannot be found elsewhere. The confidence which the average working man has in his own municipality is the great factor in local government life. He feels that he has some control and can establish direct touch with those who govern his city or town, and he knows that the town's affairs are subjected to investigation and scrutiny throughout the year, and that any matter can be discussed at the monthly meeting of the Council. When it comes to Trustee Savings Banks, he has no interest in the matter whatever. The report of the annual meeting is all that he gets.


The slow progress of Trustee Savings Banks after 100 years working is nothing to boast about, but rather testifies to their ineffectiveness.


It is pointed out by the critics that money is loaned to the Aberdeen Town Council. Let us refer to their figures. The Town Council of Aberdeen has received a million of money on loan from the Savings Bank, but the Government have had on loan from the same Bank 2,300,000. One wonders why, in these days, the Government should hold 86,000,000 of money collected by the Savings Banks in different local areas and only pay for that money 2. 17. 6d. per cent, and yet if any of these local bodies apply to the Government for money, they are required to pay in the region of 5% for it.


January 17th 1927.