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Birmingham Municipal Bank
 
What Came Before the Municipal Bank
 

A brief history of the UK's Savings Banks (1810 to 1864),

 

plus a more detailed description of the operations of the

 

BIRMINGHAM SAVINGS BANK (1827 to 1864)

 

In 1799, in the parish of Ruthwell in Dumfriesshire in southwest Scotland, the Reverend Henry Duncan attempted to revitalise the local friendly society which had become moribund in his parish. At that time, friendly societies were popular with members of the working class who paid regular subscriptions in order to receive sickness and funeral benefits - some 7,200 societies had a membership of nearly 650,000. At its most basic level therefore, friendly societies were organisations, prior to the introduction of the welfare state, to which members paid a regular subscription in the expectation that the society would provide them with financial aid in times of need, when the alternatives were the workhouse or a pauper's funeral. In addition, some societies (often known as 'Annuity Societies') provided a widow's pension after a member's death.

 

However, friendly societies had many disadvantages as a means of promoting self-reliance amongst the industrious poor - they generally had complicated rules, often excluded women, and many were based on monthly social gatherings in a local public house. Additionally, friendly societies, with their requirement for the payment of a regular subscription, were only suitable for better paid workers in stable employment, such as domestic servants, and skilled workers in the new manufacturing industries; seasonal workers in rural areas (for example) were unable to commit to a regular subscription.

 

Henry Duncan drew up new rules and regulations for his local friendly society and took steps to improve its management. As a result, membership became popular and Duncan established a second society, specifically for women. Despite this success, Henry Duncan was not convinced that friendly societies were the correct vehicle to enable the poor to provide for future uncertainties. Utilising the knowledge he had gained from a period in the 1790s when he worked in a Liverpool bank, Duncan opened the Ruthwell Savings Bank in 1810, using the friendly society's rooms in the village. Although attempts had previously been made to establish savings banks in Wendover and Tottenham, Henry Duncan came to be considered the "Father of the Savings Bank Movement" - an appellation owing as much to his efforts to encourage saving banks generally, and for them to be run on proper business lines, but also to his work in promoting a Parliamentary Act, passed in 1819, that gave savings banks certain rights and privileges including exemption from stamp duty.

 

Henry Duncan's savings bank, however, was not free from the complicated rules that were a feature of friendly societies. In addition to a complex management system, customers could only deposit between One Shilling and Ten Pounds, and there was a fine of One Shilling for anyone who failed to deposit at least Four Shillings a year, this at a time when an agricultural worker's wages were about Ten Shillings a week. Withdrawals were difficult as they could only be made at the quarterly meetings of the management committee. But interest was paid at a rate of 4%, or 5% for customers of three years' standing, thanks to the savings bank's funds being deposited with the British Linen Bank at 5%.

 

Over the next few years, a number of savings banks were opened both north and south of the border. In February 1817, George Rose, one of the MPs for Christchurch in Hampshire, introduced a Bill to regulate savings banks. The Bill provided for all deposits of savings banks in England and Wales to be placed with the National Debt Commissioners in a 'Fund for the Banks for Savings' - an arrangement that was to continue for over 150 years. Similar legislation followed in Ireland, but not in Scotland where it was desired to have greater flexibility over the banks' investments. A major cause of this discrepancy between Scotland and the rest of the United Kingdom was the fact that Scottish commercial banks paid interest on deposits, thus providing local savings banks with a source of income, whereas in the other countries this was not so. The National Debt Commissioners paid interest at 4 11s. 3d. per cent, allowing depositors to receive  4%.

 

1817 was a year of unparalleled depression following the end of the Napoleonic Wars and a series of bad harvests. Consequently, the cost of providing poor relief was climbing to historic levels. With pamphlets being widely circulated describing the method of setting up and running a savings bank, many community leaders saw advantages in establishing a local institute that would encourage self-reliance amongst the working classes. Such community leaders frequently contributed to the cost of setting up a new bank and made a deposit sufficiently large to provide initial liquidity. Although the early banks were run along business lines, they still relied heavily on the support of their trustees. These trustees, who gave their time voluntarily, oversaw the running of the bank. They were upstanding members of the local community, who often came from the ranks of the aristocracy, landed gentry or clergy.

 

By the end of 1817, 101 savings banks in England and Wales had opened accounts with the Bank of England which was administering the 'Fund for the Banks for Savings'. During 1818, a further 125 savings banks were established in England and Wales. By the end of 1819, total deposits in the 'Fund for the Banks for Savings' amounted to over 2.8-million.

 

The majority of banks that commenced in the early years had very limited hours of business, often just a few hours on a couple of days a week. The majority of the bank's work was done on a voluntary basis by its managers or directors. The books were maintained by a paid official, usually known as the Actuary or the Secretary. Accommodation was normally a rented room, and equipment was basic: a table and chairs; a cash book and a committee book; a ledger and journal. Security consisted of a requirement for the paid official to provide a surety as a precaution against embezzlement of the funds, plus a receptacle for cash. The latter was often a box with three locks, the keys being held by three different officials.

 

However, despite the hopes of the proponents of savings banks, the early depositors were farmers, skilled workers, domestic servants, shopkeepers, school teachers, etc. This experience confirmed that there was a need to provide for the savings of regular wage earners who did not like the restriction of the monthly subscription that was a feature of the friendly societies. However, it confirmed the view of those who had doubted that savings banks would reduce the cost of poor relief, as the poor (by definition) had nothing to save.

 

A downturn in the economy in 1825 led to a number of commercial banks failing, but savings banks (other than the Scottish banks), with their funds invested with the Government, were seen to be secure. It was not until 1835 that an Act was passed that enabled Scottish banks  to deposit their funds with the Government - this milestone effectively being the birth of the national Trustee Savings Bank movement.

 

However, depositors' ability to save was affected by the 1825 downturn and the growth of deposits slowed. Additionally, the government took measures to prevent the better off from taking advantage of the security and the high rate of interest paid by the savings banks by limiting the amounts of annual and total deposits made by individual depositors. This move to restrict the total amount deposited, but not to discourage saving by the less well off, was encouraged by the fact that the savings banks were costing the state over 67,000 a year; between 1818 and 1828, the banks were paid 744,363 more than was received from investments. The annual deposit limit was reduced from 50 to 30, the total amount allowed from 200 to 150, and no interest was to be paid on balances over 200.
 

During the 1820s, despite the downturn in the economy in 1825, the balances held on deposit by the savings banks continued to increase:

 

 

1820

3,469,910

1821

4,740,188

1822

6,546,690

1823

8,684,662

1824

11,720,629

1825

13,257,708

1826

13,135,218

1827

14,188,708

1828

15,358,504

1829

14,311,192

 

By 1829, there were 476 banks holding the accounts of 409,714 depositors. In the Birmingham area the only banks were at Sutton Coldfield, opened in 1819 (closed in 1870), and the Birmingham Savings Bank, opened in 1827, when the population of the town was approximately 110,000.

 

The growth of deposits in savings banks continued in the 1930s - the total balances in 1939 being 22,425,812. At this date there were 541 savings banks, many of which were very small operations with moderate total sums deposited. The number of depositors was 748,396 - an average account balance of approximately 30.

 

The Birmingham Savings Bank commenced on May 23rd (or possibly May 24th) 1827. Printed statements relating to the operation of the Bank are archived under the heading Annual Reports. The statements take the format of Minutes of an Annual General Meeting (AGM) that incorporates an Annual Report plus Financial and Statistical Statements. Little information is given regarding the structure and personnel of the Bank's management.

 

The Chairmen of the first three AGMs were C Shaw (the Borough's High Bailiff: 1828); William Beale (1829); William Chance (the Borough's High Bailiff: 1830). During the AGMs, the Chairmen stood down whilst a resolution was passed thanking the Chairman for his able conduct of the meeting, etc. The Chairman Pro Tem on these occasions was T Lee (1828); George Nicholls (1829 and 1830). The meetings were said to be of the "Trustees and Managers of the .... Institution" without specifying who they were. The only other personnel named were Messrs Galtons and James (named as Treasurers in 1828, with Hubert Galton as Treasurer in 1829 and 1830); a J E Clarke appears to be the Bank's Secretary for the three years, although his name is printed as "I E Clarke" in 1830 and omitted in 1829.

 

A large part of the printed documents is a report produced by three Auditors. These gentlemen are consistent for all three years: George Nicholls, J F Ledsam, and P M Twells. However these were not independent auditors but three members of the Bank's management.

 

 

The Annual  General Meeting that reported on its first period of trading was held on January 8th 1828 - in common with other saving banks, the financial year end was November 20th. The meeting was held at the "Public Office in Moor Street", where the following report of the Auditors was presented:

 

In presenting the first Report of the Birmingham Savings Bank, the Auditors have much gratification in observing, that the utility and importance of this Institution are fully acknowledged, and that the progress already made since its commencement on the 23rd of May last, as compared with similar Institutions, is greatly in favour of the Savings Bank at Birmingham, and a proof of the superior intelligence and prudence in that class of its inhabitants for whose benefit it has been established.

 

By the statement now laid before you on the accounts, balanced to the 20th of November, conformably to Act of Parliament, it appears, that from the 23rd of May to that time, the Deposits, with Interest, amounted to 10,612 12s. 8d. from which 345 18s. 9d. had been withdrawn in repayments, leaving a balance of 10,266 13s. 10d. 980 accounts had been opened, 2337 deposits made, and 54 sums repaid. Since that date to the present time the funds have been increased by deposits of upwards of 3,000.

 

The Management has been conducted on the most economical scale, but the necessary purchase of books, and of furniture for the office, the printing, and other incidental expenses, together with the preparation for that most desirable auxiliary, "The Friendly Institution", have nearly exhausted the small donation fund subscribed at the outset; there can be no doubt, however, that the future expenses of the Savings Bank will be provided for by its reserve fund, without any further appeal to public liberality.

 

Although the "Friendly Institution" has been for the present suspended, on account of a proposed revision of the legislation enactments on this subject, it continues to be a most valuable desideratum; and it is hoped that, after the approaching Session of Parliament, the great advantages of such an establishment may be offered to the provident Inhabitants of this town on a safe and permanent basis. Meantime, all those for whose benefit such Institutions were contemplated by the Legislature, are earnestly recommended to have recourse to the Savings Bank, where the fruits of their industry may be deposited, and will safely accumulate at compound interest, until they can avail themselves of the stable advantages of a "Friendly Institution" founded on correct data, and sanctioned by the most competent authorities.

 

In this Report it is proper to acknowledge the kind attention of the Treasurers to the duties of their office, the active exertions of those Trustees and Managers who have given their valuable attendance, and the zeal, diligence, and accuracy of your Secretary.

 

In conclusion, it is earnestly urged on every one "desirous of promoting the welfare and happiness of the industrious classes", and of "improving their moral habits", to use his best exertions in recommending to his neighbours and dependants the advantages to be obtained by judiciously applying "a portion of their earnings during health" to "provide against a season of sickness, &c. &c." and in reminding them that great results may and frequently do arise out of small and inconsiderable beginnings.

 

G. NICHOLLS,

J F LEDSAM,

P M TWELLS,

AUDITORS.

 

The above report quotes the balance due to depositors at November 20th 1827 as 10,612 12s. 8d., the attached report of the Secretary stated that the balance was 10,299 7s. 3d. Of this sum, 10,261 3s. 1d. was invested with the "Commissioners for the Reduction of the National Debt" and 38 4s. 2d. was held in cash. The discrepancy of  351 9s. 6d. on the balance figures being the amount of capitalised interest.

 

In order to confirm that the Bank is fulfilling its objective of providing a facility for small savings, an analysis of the total balances was provided:

 

No of

Depositors

November 20th, 1827

. s. d.

706

Balances not exceeding 20

3,664 - 18 - 6

236

Above 20, not exceeding 50

6,397 - 19 - 7   

3

Above 50, not exceeding 100

152 - 0 - 0

2

Friendly Societies

51 - 15 - 9

 

Balance on the Reserve Fund

32 - 13 - 5

947

 

10,299 - 7 - 3

 

The Auditors' report made reference to "the Friendly Institution" which appears to refer to the Bank's desire to provide customers with the opportunity to purchase an annuity. However, the general question of annuities is under consideration by the Government, and the Bank's plans are in suspension. Reference is also made to a Reserve Fund created at the Bank's inception by public donations - a common practice for new savings banks when the initial expenses and liquidity requirement were covered by local dignitaries of worth, who probably then took up positions as trustees or managers. The Birmingham Savings Bank reports that it has used its Reserve Fund to cover the initial expenses of both the Bank and the proposed "Friendly Institution"

 

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