Municipal Banking
The Treasury Committee
set up in 1926 "to consider whether it be desirable to permit a further extension of municipal savings banks" has issued its report,
which will be read with special interest in Birmingham. The Committee was a strong one, with Lord Bradbury as chairman; and in all
the circumstances it ought not to be criticised on the ground that it represented banking experience rather than municipal interests;
for the soundness of municipally-organised thrift from a banking point of view is after all the principal - one may say the sole -
question at issue. And the verdict is definitely adverse. The report fully recognises the success of the Birmingham bank - at present
the only institution of the kind. Its results are described as "very remarkable" and as "considerably exceeding anticipations". The
"enthusiasm and efficiency of its direction" are ungrudgingly conceded; and while they hold that "the municipal spirit in Birmingham
is unusually powerful", the Committee also recognise the very great value of local sentiment and municipal patriotism" in other places.
None the less, they deem it prudent to leave the Birmingham Municipal Bank alone in its glory. For various reasons, which are set
out at length, they reckon it improbable that similar banks established elsewhere would achieve comparable results; and they are even
of opinion that in some cases there might be a danger of positive collapse. Admittedly, the odds against any particular bank becoming
"seriously embarrassed" would be heavy; nevertheless, given a considerable number of such institutions, each operating in an area
liable to sudden and violent industrial ups and downs, the chances of such embarrassment being experienced somewhere or other would
be "not negligible". And that being so, it becomes necessary to remember that the consequences might be serious - not merely in the
locality directly affected, but elsewhere. Supposing a large sudden withdrawal of funds from a municipal savings bank which the municipality could not for the moment meet in cash. Presumably it would endeavour to borrow from one of the joint stock banks - and the circumstances
of the moment might be such as to compel the joint stock banks to think first and foremost of their own position. In that event the
credit system of the country as a whole would sustain a nasty shock. As the Committee put it, "the risks which a bank runs are
risks not for itself alone, and the mere risk that it may become embarrassed weakens the general structure in times of stress, quite
irrespective of what actually happens to it".
Possibly Birmingham people, who have confidence in their own municipal venture,
will feel that an undue amount of importance is here attached by the Committee to an extremely remote contingency. And possibly Lord
Bradbury and his associates might in certain circumstances have faced more buoyantly the special risk which now weighs heavily with
them. But it is perfectly true that a standard of precaution which may seem reasonably adequate for any particular bank taken by itself
may be inadequate for the general banking structure of the country taken as a whole; and it is also true that for some years to come
the credit of the country generally will require to be watched with particular solicitude. If it be certain - or even probable - that
the widespread extension of municipal savings bank facilities would in any way hamper the Treasury in its "delicate and difficult"
conversion operations, then the case against extension needs no further argument. And on this point the members of the Treasury Committee
should be able to speak with authority. Their view, we think, must be accepted. Cities which would have liked to follow Birmingham's
example must be content at any rate to wait awhile - and meanwhile they may draw what consolation they can from the Committee's conviction
that the municipal savings bank, in ordinary circumstances, could not be expected to operate as a very powerful new incentive to thrift.
The Birmingham bank was opened in extremely favourable circumstances, during the war, at a time when everybody had money to burn,
or save. Its deposits in March, 1927, amounted to £7,800,221 in 225,760 accounts. They were the larger and the more numerous for the
reason that Birmingham was then - as it still is - without any Trustee Savings Bank of the type which has been so successful in other
parts of the country. But even so, in the opinion of the Committee most of the money on deposit was money diverted from other thrift
agencies. There estimate is that in the absence of any Municipal Bank 30 per cent of the whole amount would have found its way into
the Post Office Savings Bank; that 20 per cent of the whole was diverted from Savings Certificates, and that 25 per cent more would
probably have gone to swell the resources of the joint stock banks, the building and co-operative societies, and other lesser agencies.
And it is certainly remarkable that within the period under review local building societies increased their shares and deposits by
no more than 59 per cent, while "all other societies" carrying on the same business increased them by 121 per cent.
However, the claim for the Birmingham Bank is not merely that it has induced a large number of men and women to save a certain sum of money (on the Committee's showing a matter of about a million sterling) which otherwise they would not have put by. There is the further claim that the bank enables money to be paid in and withdrawn with superior facility; that unlike the Post Office it pays a reasonable rate of interest; and that it enables the Corporation to make use of deposited money in a fashion advantageous to the city. And it is therefore of importance to note that the Committee show themselves distinctly critical of the system, as it affects the finances of the Corporation. Probably they are right in holding that no local authority would be particularly anxious to set up a savings bank of its own unless, like Birmingham, it were empowered to make use of a substantial proportion of the deposits for its own purposes; but probably they are right, too, in holding that the presence of a large fund of this kind tends to stimulate municipal expenditure. (Birmingham, of course, in its capacity of borrower from the bank, pays interest at a lower rate than independent lenders would demand; and in the absence of statutory regulations another municipality might show favour to itself to an even greater extent.) A question here arises, what proportion of its assets a municipal savings bank ought to be free to advance on loan; and we gather that in the judgement of the Committee - which here again speaks with exceptional authority - after necessary provision for possible emergencies has been made "the amount available for advances for capital expenditure in the locality will probably be reduced to quite modest dimensions". The Birmingham experience, perhaps, is rather more encouraging - but then it appears that if Lord Bradbury were formulating a scheme for municipal banks generally he would think it necessary to insist upon the maintenance of a somewhat higher proportion of quickly-realisable assets than Birmingham can show. Probably he would also deprecate a system which permits even one-fifth of available resources to be advanced on mortgage of house property. The Corporation is a generous mortgagee. It advances, in ordinary cases, up to 80 per cent of a purchase price; and to the occupier of a Corporation house it may advance up to 99 per cent, so that the margins left for possible depreciation are cut fine.
Birmingham Post: January 26th 1928
Municipal Banks Championed
A sharp
answer to the report of the Bradbury Committee, in which it advised against the extension of the municipal banking system, was made
by Sir Percival Bower, chairman of the Birmingham Municipal Bank, responding to the toast of the City of Birmingham at a dinner of
the Central Counties Branch of the Public Dental Service Association in Birmingham last night.
The Committee, he declared, was
not so composed as to inspire confidence in its impartial judgement. It conclusions were arrived at by what he regarded as a process
of laboured reasoning, with little or no foundation in fact, and largely representing the views of men whose best friend would not
urge that they were in any way sympathetic to the development of municipal banking.
He hoped that municipality after municipality
would continue to challenge any and every Government by promoting Parliamentary Bills seeking power to establish municipal banks until
public opinion swept aside those who resisted the development of such banks from motives that were not free from self-interest and
the protection of deeply-entrenched vested interests. The views expressed by the Committee were largely the outcome of a desire to
keep municipal banks out of the field.
They who accepted responsibility for the management of the Birmingham bank appreciated
the fact that changes might be necessary, just as they might be necessary in the administration of the large joint stock bank and
other banks. They were endeavouring to effect alterations, but the Bradbury Committee was apparently anxious still further to apply
the "dead hand" of obsolete legislation, whereas the bank management wanted to free themselves from the irksome restrictions that
clogged and hampered their activities and extensions.
Sir Percival Bower remarked at the outset that the report of the Committee
caused him no feeling of disappointment, certainly not of discouragement, for it embodied most of the views he ventured to suggest
it would embody, having regard to the personnel of the Committee. He made no apology for stating that if the Lords Commissioners of
the Treasury were desirous of obtaining a fair review of the whole question, and a report that would inspire confidence, the obvious
thing to do as to set up a committee representative of all interests involved in this great question. He made the observation because
he had seen and heard expressed the view that the Committee was such as to inspire confidence and a fair review of the whole question,
that it was a strong Committee, and that it should not be criticised on the ground that it represented banking experience rather than
municipal interests. He most definitely challenged this line of thought, and stated that the Committee was not so composed as to inspire
confidence in their impartial judgement, and from the very start he questioned both the wisdom and the fairness of confining the personnel
of the Committee within the limits to which it was confined.
He definitely expressed the view that while the report might serve
to hinder, it could not prevent the ultimate development of municipal banking, and he hoped that municipality after municipality would
continue to challenge any and every Government by promoting Parliamentary Bills seeking power to establish municipal banks, until
public opinion swept aside those who resisted the development of municipal banks from motives that were not free from self-interest
and the protection of deeply-entrenched vested interests. The conclusions of the Committee were arrived at by what he regarded as
a process of laboured reasoning, with little or no foundation in fact, and largely represented the views of men whose best friend
would not urge that they were in any way sympathetic to the development of municipal banking.
The committee stated that municipal
savings banks would provide some additional incentive to thrift, but the proportion of new savings which they, and they alone, would
obtain was small in relation to the whole. They did not advance a single sound reason for this conclusion. All experience went to
prove that the Birmingham Municipal Bank had tapped a source of depositor that in the main would not have gone elsewhere. The facts
were contrary to the personal views of the Committee.
It was intended that municipal savings banks might tend to increase municipal
expenditure, and involve banking risks which might react unfavourably both on municipal finance and on the credit system. Again the
Committee expressed an opinion without any foundation for it, and their conclusion he most emphatically and flatly denied. Everyone
acquainted with the position knew why financial circles preferred Corporation stock issues with all the heavy costs which had to be
incurred, and he challenged the Committee to produce the least evidence to prove that the Birmingham Corporation had, in consequence
of having established the only municipal bank in the country, spent a single pound more than they would have spent had no such bank
existed. One noticed that throughout the report, the Committee all the time leaned back on the statement that "it might do this" or
"it might do that".
Another statement in the report was "that the general establishment of such banks within the next ten years
would cause serious embarrassment to national finance during which it is likely to be very difficult". Quite naturally the Treasury
were out, so far as they could, to secure an open field, but again the Committee failed to adduce any facts in support of their conclusion,
and were merely expressing a view which he submitted was largely the outcome of a desire to keep municipal banks out of the field.
The
Committee gave their whole case away in the paragraph of their report referring to the Birmingham Municipal Bank, in which they stated:
"Even though we are not in agreement with the general policy which brought it into being, we should be reluctant to contemplate its
disturbance, unless we felt that there were real risks of embarrassment arising".
"In my opinion", observed Sir Percival, "the
object all along is to apply the dead hand of obsolete legislation from which the trustee savings banks suffer. The Committee clearly
indicate that they are not in agreement with the general policy which brought the Birmingham Municipal Bank into existence, and yet
this body of gentlemen were asked to state whether there should be any extension of municipal banking.
"We, who accept responsibility
for the management of our Birmingham Municipal Bank, appreciate the fact that changes may be necessary, just as they may be necessary
in the administration of our large joint stock banks, and other organisations interested in the banking life of our country. We are,
in fact, endeavouring to effect alterations, but the Committee are apparently anxious still further to apply the 'dead hand', whereas
we want to free ourselves from the irksome restrictions that clog and hamper our activities and extension. We are satisfied that we
are as secure as any other banking concern in the country, and, in fact, much safer than some".
He agreed that consideration
should be given to the possibility of making certain improvements in the existing savings banks, for he was in favour of encouraging
every existing thrift agency, and if many of them had not functioned as well and as successfully as they might, it was largely the
fault of repressive regulations applied by Government departments. So far as the Birmingham Municipal Bank was concerned, it stood
out as monument to its founder, Mr Neville Chamberlain. He was afraid, however, its very success had made it difficult for other municipalities
to secure the same power without a long and stiff fight. He asked that the municipal bank should be judged as should the matter of
municipal banking generally, not by prejudice and self-interest, but by the standard of what was going to be best for the nation.
Mr P J Hannon, MP, speaking at the same function, said he desired to enter his protest against a public Committee being charged with prejudice and self-interest. He was sorry Sir Percival Bower had used these words, and he was perfectly certain that on reflection he would consider he had been a little extravagant in the charges he had made against a public Committee of honourable and unprejudiced persons.
Birmingham Post: January 26th 1928
"A cold financial survey"
The Lord Mayor of Birmingham (Alderman A H James),
speaking last night at the annual dinner of the Birmingham and Midland Scottish Society, also made reference to the report of the
Committee. Birmingham, he said, had emerged with distinct credit with regard to the bank. He described the findings of the Committee
as a cold financial survey which had little regard for the humanities. No one could divorce from municipal enterprise the effect upon
the community, and in that connection the Birmingham Municipal Bank had accomplished wonders during the short term of its existence.
The terms of reference which were entrusted to the Committee probably expunged the consideration to which he had referred. Many other
findings were based on hypotheses which lent themselves to criticism. At any rate, the venture had proved successful in Birmingham
and had accomplished a desirable end. That was ungrudgingly confessed by the personnel of the Committee, and it seemed inconsistent
that having flattered Birmingham upon the success of their enterprise, the same facilities should be denied other municipalities.
If there was one thing, added the Lord Mayor, that appealed to him more than anything else in connection with civic activity, it was the voluntary service rendered by a large part of the community. That work was performed quietly and unostentatiously.
Birmingham Post: January 27th 1928
Letter to the Editor
Sir - Following upon a speech delivered last night by Sir Percival Bower at
a function in Birmingham, at which he and I were guests, it was impossible for me to do more than enter my emphatic protest against
the unwarrantable and extravagant attack which he made upon the report of the Committee appointed by the Treasury to examine the desirability
of the further extension of municipal banks.
Sir Percival's main assault was upon the personnel of the Committee. He avoided
- with a single exception, apparently with a deliberate intent - the substance of the conclusions at which the Committee arrived.
He defended with great vigour the efficiency and utility of the Birmingham Municipal Bank, an wholly unnecessary rhetorical outburst
in face of the generous consideration which this progressive institution received at the hands of the Committee. And his invective
was inspired not so much by his concern for Birmingham, as by his spacious ambition to see municipal banks established all over the
country.
It is hardly necessary for me to defend the quality and character of the members of the Committee against that ill-considered
and intemperate diatribe of Sir Percival. It would be difficult to suggest a more authoritative and more competent body of men. To
declare that a Committee so composed based its report "upon motives that were not free from self-interest and the protection of deeply
entrenched vested interests" is a grossly libellous reflection upon men most of whose lives have been devoted to the study of financial
questions in their relation to the public welfare.
On Sir Percival's own confession, he "appreciated the fact that changes may
be necessary" in the management of the Birmingham Municipal Bank, but he is intolerant of the wisdom which relates the extension of
municipal banks to the stability of public credit, and the lowering of the security upon which a system of sound public finance must
always be founded.
The report is, in fact, a sane and wholesome exposition of the dangers to which the country is exposed from
shallow thinkers, who profess to discover in socialisation and municipalisation a panacea for all our economic discontents. For years
past certain doctrinaire Socialists have projected the nationalisation of banks, and no doubt many of these lop-sided economists would
like to see a general scheme of municipal banks; but the report of the Treasury Committee, comprehensive, thoughtful, and impartial
as it is, places rainbow-chasing in public finance in its corrective perspective. We have already our own great banking institutions
accessible to everybody, our Post Office Savings Bank, Trustee Savings Banks, and the National Savings Committee. It is, in my judgement,
in the co-ordination and improvement of these institutions that the virtue of national thrift is to be cultivated.
F J HANNON
29,
Abingdon Street, London, SW1