REPORT OF GERMAN MUNICIPAL BANKS.
The representatives appointed to investigate the system of German
Municipal Banks beg to report that they visited Berlin, Dresden, Munich, Frankfort and Cologne. At each town they were well received
and given facilities for examining the banking system. Information called for was readily supplied, and everything done to make the
investigation valuable.
The following report gives, in brief, a review of the establishment and development of the German Municipal
Bank system.
In the beginning of the nineteenth century steps were taken in the United Kingdom to place savings banks upon a
sound footing by passing legislation regulating their operation and management.
In Germany, also, steps were taken in the same
direction, although it is recoded that the first savings bank to be established on a public welfare basis was that at Hamburg which
dates back to 1778. In 1818 the Municipal Administration of Berlin undertook the establishment and operation of a savings bank, and
special importance thereby attaches to this action. The Berlin bank became the standard for all Germany, and has so remained. With
the exception of one or two older-established concerns, all the German Savings Banks are now in the hands of municipal authorities,
who not only control the management, but are fully liable for their obligations to depositors. These banks may be more correctly described
as financial institutions of a public character and for the welfare of the public.
An important Act was passed in 1838 in Prussia,
the largest state in Germany, with the object of obtaining a uniform legal foundation for all savings banks. At that time there were
in existence in Prussia alone no less than 80 savings banks. No more banks could be established without Government sanction. The Act
fixed the scope of business and laid down that the investments must be in first mortgages and Government securities, but permission
was given to grant loans to those cities or towns in which the banks were located. The Act further provided for Government supervision
of these banks.
The idea of having municipal savings banks proved to be a most pronounced success, as the statistics demonstrate.
In the State of Prussia alone, in 1850, there were 234 banks with 278,100 accounts, representing 54 million marks. In 1913 there were
1,765 banks with 14,417,642 accounts, representing 13,111 million marks. Taking Germany as a whole, there were in 1913 approximately
3,000 banks, with 5,000 branch offices, and the accumulated deposits stood at 18 billion marks, or approximately £900,000,000. Every
third German possessed his or her pass book, which fact speaks for itself.
The advent of the Great War and the period of inflation
adversely affected the savings banks, whose deposits considerably depreciated. Thus, in 1924, these deposits, expressed in gold marks,
only amounted to about 30 million marks. A remarkable outstanding feature, however, is the degree of confidence which has been restored
amongst the populace - a confidence attributable to the fact that these banks are municipally-owned and under Government supervision.
The stabilisation of German currency, and this return of confidence and trust in these municipal banks, have brought the deposits
from 30 million marks to 3 billion marks in three years - 1924 to 1927. The monthly increase in Germany as a whole is placed at 1,000
million marks.
There is evidence that the success of the last three years in securing this return of confidence is due to intensive
propaganda and a keen advertising campaign. Following the inflation period, it was noticed that a new clientele comprising small independent
business people were taking advantage of these municipal banks, induced to do so, no doubt, for three reasons: first, the comparatively
high rate of interest allowed; second, the ease with which their money could be obtained when needed; and third, because of the municipal
guarantee behind the banks. But since 1926 the greatest increase in accounts has been amongst employees, labourers, and people with
fixed incomes. The largest German Savings Bank is at Berlin, and the statistics show the increase in accounts as follows:
|
1923 |
6,900 |
|
1924 |
55,600 |
|
1925 |
167,800 |
|
1926 |
232,800 |
The
modern development of the German Savings Banks may be said to have taken place at the beginning of the twentieth century. Previously,
the activities of the banks were confined to municipal financing, granting of first mortgage loans to the inhabitants, and investing
in Government securities. Pre-war, 40% of the funds were invested in first mortgages, but this percentage is now about 30%. Since
1912 the law has required the banks to invest 25% to 30% in trustee securities, ie, loans to the Federal Government, loans to the
State Government, or loans to the municipality. In 1908 a law was passed permitting the banks to issue cheques to their depositors,
while in 1914 the purchase and sale of War Loan and similar securities were permitted. Then followed the opening of current accounts;
a service of money transfers between individual savings banks and the various clients of those banks, without the handling of actual
cash; collection of bills of exchange and cheques; and issuing of letters of credit. It can be said that the banks do most of the
regular lines of banking business needed by their clients.
In the last quarter of the nineteenth century the German Savings Banks
began to form themselves into district associations, but the absence of any legal character to these associations tend to looseness
rather than strength. In 1916 there were three large associations, viz: the German Savings Bank Association, the Central Giroverband
or Central Clearing Association, and a special Association of the Municipal Banks of Germany. It was desirable to bring about a consolidation
of these three associations, and in 1924 this was effected by the formation of the Deutsche Spatkasson and Giroverband (German Savings
Banks and Clearing association), which is a Corporation under public law and under Government supervision. Membership may be enjoyed
by legally qualified associated savings banks, municipal banking or clearing associations incorporated for the German States and provinces.
Membership is also permitted to certain savings banks and savings bank associations in the ceded German territories and in German-Austria;
thus the Federal Association of German Savings Banks in Austria acquired this special membership at a Convention held in Cologne in
1925. The principal obligation of the district associations is the assumption of liability for the central association, including
for each district association an equal share of all liabilities not covered by profits and assets of the central association. Inasmuch
as the municipal bodies are responsible for the liabilities of their banks, it follows that the German Savings Bank and Clearing Association
is guaranteed to about 90% of the entire capital and taxing power of Germany. The objects of the Association are:
(a) The furtherance
of the common interest of its members and of the German Savings Banks, municipal banks and clearing offices affiliated with them,
as well as the representation of such interests as towards (sic) authorities, parliaments, and the public.
(b) The furtherance
and development of savings banks and municipal banking business.
(c) To carry on municipal money and credit transactions.
(d)
To effect clearing of money transfers between affiliated associations and other German municipal associations.
(e) To further
payments by transfer or cheque, and to carry through generally all transfer and clearing transactions with savings banks, municipal
banks, and municipal associations.
Membership of the Deutsche Sparkassen und Giroverband entitles the affiliated associations,
savings banks and municipal banks to make full use of the whole organisation on equal terms, and irrespective of any regulations prescribed
by law for such cases, the affiliated associations must obtain the consent of the Giroverband to any change in the boundaries of their
districts.
Any affiliated association may withdraw from membership of the Giroverband on giving six months' notice, such withdrawal
to take effect only after the expiration of the third business year following it. On the other hand, power is reserved to the Giroverband
to expel any affiliated association after fair hearing of the case for expulsion.
The executive bodies of the Giroverband are
(a) the Meeting of the Association, and (b) the Governing Board. The Meeting is comprised of three representatives of each of the
affiliated associations, one of whom must be a member of the management or a leading official; six members of the Convention of German
Cities and Towns; four members of the German Rural Districts Association; two members of the League of German Cities and Towns; two
members of the German Rural Municipalities; the President of the Meeting of the Association, and the acting members of the Governing
Board.
The Meeting of the Association pass resolutions on the following matters:
1. Approbation of annual accounts and balance
sheet.
2. Application and employment of the Association's assets in so far as not determined by law.
3. Raising of loans
through the issue of bonds to bearer.
4. Raising of contributions from affiliated associations by special assessment.
5.
Increase of working capital.
6. Admittance and exclusion of affiliated associations.
7. Amendment of bye-laws.
8. Dissolution
of the Association.
9. Other matters submitted by the Governing Board.
The Governing Board consists of the President, the
acting Managers and one representative from the Convention of German Cities and Towns; one representative each from the German Rural
Districts Association, the League of German Cities and Towns. and the Convention of German Rural Municipalities. There is special
provision also for electing two additional members qualified to promote the Association's purposes.
The duties of the Governing
Board appear to be:
1. To lay down principles for appointment and dismissal of officials and other employees of the Association
and of the banking institution connected with it.
2. To regulate the business of the bank.
3.To lay down service regulations
for the bank and its Board of Directors.
4. To elect the President, Vice President, the Managers, and the members of the Bank's
Board of Directors, and regulate their appointments or substitution.
5. To decide upon participation on the part of the bank
in other undertakings sanctioned by law.
6. To decide upon establishment of branches.
The Governing Board is divided into
Committees to deal with the following matters:
(a) Savings Banks' affairs.
(b) Transfer and clearing service.
(c) Affairs
on municipal banking.
(d) Supervision of the Central Audit Department.
Annually the Governing Body call a General Meeting
of German Savings Banks and Municipal Banks, to deal with important Bills introduced, and any government decrees, or with other questions
of importance to the banks.
The Association must establish a central office; publish a periodical on the Association's affairs;
carry on a public banking institute under the style of the German Central Clearing Office - German Municipal Bank; establish a joint
audit office for the banking institutions of the Association and of the affiliated associations.
Upon the Central Office devolves
the duty of (a) attending to the preparation and execution of resolutions of the Association's executive bodies; (b) watching all
incidents in legislation, administration, jurisdiction, literature, and press, affecting savings banks or municipal banking and credit
business; (c) establishing and keeping a library and record offices containing books, publications, pamphlets, forms, etc on savings
banks, municipal banking and credit business; (d) advising members on legal and administrative matters; (e) editing a periodical on
the Association's affairs; (f) representing the interesting of members in the public press, and carrying on negotiations necessary
to protect such interests.
The public Banking Institute carried on by the Association is an important section. So far as its
credit business is concerned, its first function is to satisfy the credit requirements of municipalities, to facilitate which it may
engage in private credit business. Otherwise the Institute is entitled to transact the following business:
1. To grant interest-bearing
loans to
(a) affiliated associates; other German municipal associations, and corporations under public law;
(b) third parties
under the guaranty of the Reich or one of the component States.
(c) not purely profit-earning corporations of public utility
under the guaranty of one of the municipal associations.
2. To receive money on interest-bearing deposits from the associated
referred to in No 1.
3. To raise long-term loans on security of bonds of indebtedness.
4. To act as intermediary for arranging long-term loans, as well as short-term loans, to municipal clearing associations.
5. To receive money on interest on deposit
accounts, current accounts, as well as transfer and cheque transactions.
6. To buy, sell and endorse bills of exchange, and make
advances thereon.
7. To utilise available funds for stock exchange transactions, and for making loans on securities, as well
as for making loans on securities, as well as for making loans secured by mortgages on principles laid down for savings banks.
8.
To invest available funds in trustee securities up to ten times the amount of reserves from time to time.
9. To keep in safe-custody
and to take charge of securities, other valuables and documents of every description.
10. To collect interest and dividend coupon
sheets.
11. To obtain new interest or dividend coupon sheets.
12. To collect inland and foreign cheques and bills, as well
as documents of every description.
13. To purchase and sell securities, as well as foreign means of payment for third-party accounts.
This is limited to the purchase of securities accepted as collateral to the Reichbank or the Prussian State Bank.
14. To execute
orders for payments abroad in German or foreign currency.
15. To issue letters of credit and to open credits.
16. To undertake
guarantees against the same securities as are required for granting credits.
17. To take participation in the capital or in the
capital liability of other enterprises up to one-half of the working capital and the reserves, subject to the directions of the Governing
Board.
18. To erect branches as determined by the Governing Board, and subject to the consent of the affiliated association which
covers the place of the intending branch.
Moneys under administration and the reserves must be invested in safe and easily realisable
securities according to principles laid down by the Reichbank or the Prussian State Bank. Moneys on deposit for third-party accounts
- in so far as they are not covered by marketable securities at the price of the day or by bills of exchange - may not be invested
on any longer terms than those subsisting for the items on the other side of the balance sheet corresponding to such investments.
Short-termed deposits and money at call may be placed on interest with banks and bankers designated to the Directorate by the Supervisory
Board, the latter fixing the maximum amount to be placed with each single private bank or banking firm.
Where the Government
have given permission to the Association to issue bonds to bearer for the purpose of raising long-term credits, the Association can
apply the funds for granting long-term credits through its banking institute to the district associations. The total requirements
for bonds in circulation issued in respect of long-term loans must always be covered to their nominal value by loans of an equal amount
and yielding the same interest. If, owing to redemption of loans, or other causes, the necessary cover is no longer fully existent,
the banking institute must replace temporarily such missing cover by securities which are acceptable to the Reichbank as collateral
securities with three-fourths of their market value.
The Prussian Minister of Home Affairs is charged with the supervision of
the Association, and may appoint agents to represent him. This supervision includes power to inspect the books and records, check
cash and examine securities, and to demand information; also to issue regulations as to the accounts and balance sheets.
The
Nassauische Landesbank, which has its headquarters in Wiesbeden, differs slightly from other German Giroverbands. It was established
by special law in 1840, applicable to the State or Province of Hesse-Nassau, and has the following powers:
1. The granting of
loans against mortgage of urban and rural estates up to 60% of the estate value. This means today 15% to 20% of the pre-war value.
Thus, a house erected pre-war and sold at £200 would sell today at £160, but if erected and sold today the same type of house would
sell for £320. Old houses are subject to the high tax of 48%, but new houses bear a much lower tax. The valuation of a house is that
ascertained by a Government valuer or by competent officials.
2. Lending of money to districts (counties), municipal and rural
communities, parishes, associations and other corporations established according to public law. There is no limit to the amount of
such loans.
3. Acting as Trustees and Registrars of stock and securities. The Landesbank is authorised to issue bands payable
to bearer so as to procure the necessary funds. Money so raised and not immediately needed may be invested in (a) current account
with the Nassauische Sparkasse, (b) banks selected by the Board of Control, (c) trustee securities.
The Nassauische Landesbank
also manages the Nassauische Sparkasse (savings bank), the latter having the following powers:
1. Granting of mortgage loans
and loans to communities.
2. Discounting of bills of exchange bearing two good signatures.
3. Advancing money against pledging
or pawning of securities.
4. Lending money against note of hand for a maximum period of one year.
5.Buying of securities
safe for investment of trust moneys. These are really fixed by the Board of Control.
6. Investing money not immediately needed,
with banks approved by the Board of Control.
The Landesbank has 40 branches with 250 collecting agencies. The branches are all
established in buildings belonging to the Bank. No commission is paid to the collecting agencies, the work is done voluntarily. The
area covered by the Landesbank comprises a population of 1,300,000. Other municipal or district savings banks scarcely exist in the
area, and nearly all municipalities transact all their financial business with the Nassauische Landesbank.
Pre-war the Landesbank
and Sparkasse had balances of 377 million marks. In the first year after the inflation these balances fell to 5,400,000 marks, but
today the balances stand at 210 million marks.
The management of the Nassauische Landesbank comprises six members, the Board
of Control has several legal assistants, and about 700 official and employees comprise the staff. The managers of the separate branches
are assisted by honorary advisers who give their opinions on every request for a credit or a loan, but each branch manager is authorised
to act on his own initiative up to a loan or credit of 5,000 marks.
It is the business of the Landesbank to provide the county
authority with long-dated loans. Pre-war the Landesbank had granted 40,738 mortgages, representing 226 million marks, and 2,283 loans
to municipalities representing 31,100,000 marks. The greater portion of these mortgages and loans was lost on account of inflation,
so that this part of the business has had to be built up again. Since the end of the inflation period 9,867 mortgages, involving 55,500,000
marks, and 536 loans involving 26 million marks, have been granted. The loans to municipalities are chiefly for building houses, constructing
water aqueducts, constructing electric works, building churches and schools, making canals and streets. Considerable credits are also
granted to artisans and wine growers, and to tenants for the purpose of settling sons of peasants on the land. Loans are repayable
in a maximum of 20 years, and amounts up to 50% of the Government valuation advanced. Interest charged varies from 6% up to 11%, and
is governed to a large extent by the rate at which the Bank has been able to sell bonds to cover. In the banking business 3½% interest
is allowed free of commission, or 4% with commission chargeable. These rates apply to accounts which are withdrawable on demand. For
definite period withdrawals higher rates are allowed, such as 5% to private persons, and 7% or 7½% to banks and similar bodies.
The
impression gained by your representatives as that the German conception of the functions which can be entrusted to Savings Banks,
sponsored by and acting with local municipal authorities, is much in advance of the English conception. They feel that it would be
for the public good if a broader outlook were taken in this Country and wider powers allowed.
The prospect of securing wider
powers would be improved if it were possible to compare the Municipal Bank system in both countries, but such comparison is difficult
owing to the different legislative basis of the two systems. As an example, certain functions of the German Municipal Banks are discharged
in this Country by different public authorities - Government, quasi-government, and local. To secure the necessary powers would involve
adjustments in the functions of bodies such as the Public Works Loan Commissioners, Joint Stock Banks, Trustee Savings Banks, etc,
etc. These changes could only be brought about by general legislation, and the likelihood of success in this direction depends on
public opinion. Experience has shown that there is in this Country a reluctance to grant additional powers to local authorities, but
in Germany, apparently, there is no such reluctance. As a result, therefore, this Country is far behind Germany in the facilities
which are provided for Savings Bank depositors.
Percival Bower, Chairman.
W E Lovsey.
J P Hilton, General Manager.
J
R Johnson, Treasurer.
Dated this 10th day of October, 1927.