Front Page Titles (by Subject) HISTORY OF SAVINGS-BANKS IN THE UNITED STATES. - A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.)
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HISTORY OF SAVINGS-BANKS IN THE UNITED STATES. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 2 A History of Banking in Great Britain, the Russian Empire, and Savings-Banks in the U.S.
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HISTORY OF SAVINGS-BANKS IN THE UNITED STATES.
ORIGIN AND GROWTH OF SAVINGS-BANKS.
THE birth of the savings-bank idea must be credited to England, where, in 1797, the first publication on the subject was issued by Jeremy Bentham, in whose plans for the management of paupers was included a system of “frugality” banks. Mr. Bentham’s writings interested many philanthropic people, and in the later years of the last century and the early years of this, many well-intentioned plans were evolved in Great Britain, some of which seem queer in the light of the present, but all of which aimed to aid the poor to independence and self-respect. Among others who were interested in this evolution were Samuel Whitbread, Patrick Colgeshoun, Rev. Joseph Smith, Lady Isabella Douglas, and Mrs. Priscilla Wakefield. The latter was, in 1801, the superintendent of a “friendly society for the benefit of women and children,” which combined with it a bank for savings for their benefit. It was not until 1810 that Rev. Henry Duncan, who has been called the father of savings-banks, established at Ruthwell, Scotland, in his own parish, “a savings and friendly society.” It is true that Mr. Duncan’s effort resembled more nearly the modern savings-bank plan than anything which had been previously established, and the publication of his ideas and work stimulated an interest in savings institutions. When, in 1817, the first act of Parliament was passed which established the system in England and Ireland under Government control, there were seventy-eight private societies distributed through England, Ireland, and Wales which received and invested the savings of the laboring poor. In Scotland, where Rev. Mr. Duncan had worked so successfully as a pioneer, these savings institutions were not recognized by law until 1835. It is worthy of mention in passing, that the savings-bank theory was established in Switzerland, at Zurich, in 1805, and the first bank in France was opened at Paris in 1818.
To America belongs the honor of first incorporating and regulating by law a savings-bank. This bank was the Provident Institution for Savings, which was incorporated in Boston, December 13, 1816, the year before the British savings-banks were sanctioned by act of Parliament. The ideas and hopes which possessed the founders of the bank in Boston were well expressed in their appeal for recognition to the Legislature of Massachusetts, as follows: “It is not by the alms of the wealthy that the good of the lower class can be generally promoted. By such donations, encouragement is far oftener given to idleness and hypocrisy than aid to suffering worth. He is the most effective benefactor of the poor who encourages them in habits of industry, sobriety, and frugality.” Though this Boston bank was the first savings institution in the world regulated by law, it was not the earliest savings-bank in the United States, for in a previous month of the same year, 1816, a bank for savings opened its doors in Philadelphia. This latter society was not incorporated until February 15, 1819.
THE BASIC IDEA OF THE SAVINGS-BANK
In looking back, it seems strange that eighteen centuries of time were required before savings-banks came as a practical aid in solving the problem impressed on human intelligence by the words, “The poor you have always with you.” Charity had been taught and applied from the first, but the benefits which flow from the blending of business and benevolence in the savings-bank system were unknown prior to the opening of the present century. Speaking broadly, the history of the first savings-bank is the history of all. The basic idea was the desire to aid the poor in a practical way, and benevolent men associated themselves together in this effort to improve the condition of those who, under conditions then existing, were unable to help themselves. These men recognized the fact that pauperism and crime were allies; that public morals became more lax as poorhouses and workhouses increased. To help the poor individually would decrease the public tax burdens for their support. This was the end hoped for. It is probable that the men who in 1817 developed the savings-bank plan had no conception of the power they were generating. Even so late as 1834, when the Bowery Savings-Bank, the fourth in New York City to be incorporated, was established, so little was its use anticipated that the total amount of deposits allowed by its original charter was limited to $500,000. When it is said that to-day the deposits of this one bank exceed $55,000,000, and it has more than 112,000 open accounts, with assets at market value of $63,000,000, the contrast of the promise of ad 1834 with the realization of ad 1896 can readily be understood. Yet so simple was the theory of the founders, so full was it of a knowledge of human nature, that in the test of sixty-two years of actual practice it has suffered no essential change, only development and expansion, guided by the wisdom and safeguarded by the conscience of the men who have been identified with these institutions in later years. It may be said here that the general law of the State of New York differs in no essential particulars from the original charter granted to the Bowery Savings-Bank in 1834. The secret of the success of savings-banks is found in the truth that “self-preservation is the first law of nature.” They furnish the opportunity in business for the outworking of this law in the individual.
While savings-banks teach the poor lessons in thrift, they at the same time pay to the poor a premium for accepting the lessons. In efforts to elevate humanity, the hope of reward is a more salutary force than the fear of punishment. Every savings-bank is a monument to that enlightened self-interest which is the corner-stone of all progress—material, intellectual, and spiritual. It is worth noting that the inception of savings-banks occurred in that era in the last quarter of the eighteenth century when Europe and America were shaken by a Vesuvius of democracy. Out of the battle-fires kindled at Bunker Hill in 1775, and rekindled with fiercer flame on the other side of the Atlantic when, in 1789, the Bastile fell, the spirit of liberty and equality rose an inspiring sight, illuminating the political, social, and commercial world. For centuries the poor had been enslaved. The rich and powerful ruled the Church and State alike; the many were kept in serfdom that the few might luxuriate in wealth and power. A few years of appalling struggle changed all this. The declaration of independence in America, the eloquence of men like Chatham and Burke in England, and the teachings of Franklin impressed new ideas on Europe and America. Freedom came, greater responsibility for the individual, and with greater liberty, more self-respect. One method of expression of this sense of greater responsibility was found in the organization of savings-banks. They, in the financial world, reach down to the people as the ballot-box does in the political world. The ballot-box enables a man to assert himself in the politics of the nation, and savings-banks furnish him the opportunity of sharing in its prosperity. It was, therefore, natural that when equality came into political life, the savings-bank should quickly follow it in financial life, each in its own way tending to uplift the individual and strengthen the nation.
FAILURES OF OTHER PHILANTHROPIC SCHEMES.
The charitable spirit had been previously displayed in the colonial history of this country, and had found expression in efforts to fix by law the price of articles of necessity, and the wages of mechanics and laborers; but experience demonstrated that such regulations were detrimental to the interests of the people; afterward lotteries with charitable designs were legalized, as well as charitable societies for the protection and support of members who might be in need of assistance, by reason of sickness or accident, and for the relief of destitute widows and orphans of deceased members. In 1803 a petition was presented to the Legislature of the State of New York, praying that sundry persons might be incorporated into a society, with power to build workshops and purchase materials for the employment of the poor. The present political society of Tammany, or Columbian Order, in the city of New York, was incorporated in 1805 as a charitable institution, for the purpose of affording relief to the indigent and distressed members of the association, their widows and orphans, and others who might be found proper objects of its charity. Many benevolent and charitable societies were incorporated in the New England and Middle States in the next decade; some of them fulfilled the designs of their founders to a limited extent, but all failed to accomplish anything for the permanent well-being of those they intended to benefit. Instead of helping the beneficiaries so that at some time in the future they would take care of themselves, they ministered to present wants only, which were ever recurring but never fully satisfied; with every succeeding dispensation the receivers became more dependent, finally lost their own self-respect, and really became paupers. The disease had been aggravated by improper remedies. Experience demonstrated that, in most cases, temporary relief resulted in entire dependence, and the number of poor, instead of decreasing, steadily increased. As soon as it became known in a community that anything could be had without labor; that soup, fuel, clothing, or shelter could be had without cost, then the moral standard of the neighborhood was lowered, and all further efforts on the part of recipients to earn their own living were abandoned, not only for the part gratuitously offered, but all honest work was given up, and ingenious schemes were resorted to in order to obtain the greatest amount possible. Time and labor were wasted which, if they had been directed by honest efforts, would, in most cases, have comfortably supported the degraded persons and their families. Having learned this plain lesson taught by experience, a class of philanthropists resorted to the system of helping others to provide for themselves by teaching the poor to acquire habits of thrift in laying aside some part of their earnings in a time of prosperity, to provide for future wants in the days of adversity or old age.
In addition to the savings-banks opened in 1816 in Boston and Philadelphia, there were others in the United States prior to 1820. The Savings-Bank of Baltimore was incorporated in December, 1818; the Salem (Mass.) bank in the same year; the Bank for Savings in New York, March 26, 1819, and in the same year also, the Society for Savings in Hartford, Conn.; the Savings-Bank of Newport, R. I., and Providence (R. I.) Institution for Savings. All of these institutions are still in existence, and the latest annual reports show them to be in a flourishing and prosperous condition, the results of honesty and common sense in their management, which have characterized them from the beginning.
THE AIMS OF SAVINGS INSTITUTIONS.
The aims and objects of savings-banks do not seem to be well understood by the general public. Even among men of affairs the amount of misinformation regarding the savings-bank plan is remarkable. For example, in a recent magazine article a Western financier referred to the “owners of savings-banks”; and oftentimes when men are approached with an invitation to become trustees the question is asked, “How much stock will I have to buy in order to be elected a trustee?” or, “What pay do trustees receive for attendance at meetings?” It is such questions as these that cause one to welcome the opportunity of explaining the beneficent purposes and philanthropic operations of savings-banks. They are really institutions organized and managed for the purpose of aiding the people of the poorer classes, so called—those who have no knowledge of investments, or whose savings are so small that they cannot be invested, with profit, by the individual. The smallest sums are received. Savings-banks will open an account for a person with one dollar; some accept an account where the initial deposit is only ten cents. As a further inducement for the depositor to save, his money, when the amount to his credit aggregates five dollars, begins to draw interest. And these little savings which amount to the enormous sum hereinafter indicated, belonging to more than four million depositors, become great factors in the financial operations of the country. The different States and the various municipalities, when about to borrow money, send their prospectus to the savings-banks, and so high is the reputation of these institutions that the price the savings-banks will pay for the securities fixes in many instances their market price, or the rate at which money can be borrowed upon them.
Later in this article will be given a digest of the New York law governing savings-banks, as the best way of making entirely clear the operation of these institutions as they attain to perfection to-day.
In the old systems of public economy, mankind were divided into two classes—the capitalist and the laborer; but through the agency of savings-banks, in these later years, our political economy must be written anew, for behold, the laborers have become the capitalists in this new world! The millions of the earnings of the poor are loaned to the rich on bond and mortgage in this State. Is a local improvement projected, the savings-bank is the capitalist who advances money. Nor should we lose sight of the character in which savings-banks are thus revealed as a sort of co-operative union of the industrial classes. Their savings, aggregated as capital, minister to these public enterprises; but these public enterprises demand laborers for their prosecution, and thus return to labor in the form of wages what they have borrowed from it in the form of capital. The laborers get better wages for the facility with which, through savings-banks, the requisite capital can be procured, which is equivalent to having their capital returned to them in full, with extra dividends, by installments called wages, while at the same time they hold in their pass-book the original certificate which entitles them to have it again returned to them, with ordinary dividends called interest. What other capitalist is able to make so safe and at the same time so profitable an investment of his money? Other “unions” are formed as combinations of labor against capital, but here is a combination of labor and capital. The former seeks to control the price of labor by arbitrary dicta; the latter affects the price of labor favorably to the laborer through the operation of natural laws. The former has a fund which offers a premium to idleness by contributing to the support of a laborer while on a strike; the fund of the latter incites to industry by flowing into the channels of enterprise which demand labor for their prosecution.
In view of what the savings-bank system has done and of what it is today, it claims fair treatment and credit according to its performance. Because savings-banks hold hundreds of millions of money securely, because they help those who try to help themselves, because they are giving aid to thousands of men in business or owning houses partly paid for, because the system has been perfected by disciplinary experience and corrective legislation, and because it is rooted in many ways directly—and remotely, too—in the material and moral interests of the people, the savings-bank system deserves the considerate support and demands the patient and sympathetic attention of those who study economical and social problems with the purpose of promoting public welfare and of doing the greatest good to the greatest number.
SAVINGS-BANKS IN THE STATE OF NEW YORK.
The nature and methods of savings-banks can be best understood from a description of them as they exist in the State of New York, as the laws of that State provide a plan on which, with some modifications, all true savings-banks are operated in the New England and Middle States.
The law of the State of New York provides that thirteen or more persons, two-thirds of whom are residents of the county where the projected bank is to be located, may become a savings-bank by executing and acknowledging a certificate in duplicate, one certificate to be filed in the office of the clerk of the county, and the other in the office of the Superintendent of Banks, within sixty days, setting forth: (1) The name selected for the corporation; (2) the place where its business is to be transacted; (3) the name, residence, occupation, and post-office address of each member of the corporation; and (4) a declaration that each will faithfully discharge the duties of trustee in such corporation.
After a notice of the intention to organize has been properly published in the newspapers, and the duplicate certificate filed with the Superintendent of Banks, this officer ascertains from investigation: (1) Whether greater convenience of access to a savings-bank will be afforded to any considerable number of depositors by opening a savings-bank in the place designated in the certificate; (2) whether the density of the population in the neighborhood designated for such savings-bank, and in the surrounding country, affords a reasonable promise of adequate support to the enterprise; and (3) whether the responsibility, character, and general fitness for the discharge of the duties appertaining to such a trust, of the persons named in the certificate, are such as to demand the confidence of the community in which such savings-bank is proposed to be established. If the Superintendent of Banks is satisfied upon these matters, he issues a certificate of authorization for the proposed savings-bank, and transmits it to the County Clerk, who attaches it to the Certificate of Incorporation previously filed with him. If the Superintendent of Banks fails to be satisfied with the necessity for the bank, or the competency of its organizers, he notifies the County Clerk of his refusal to issue the Certificate of Authorization.
The savings-bank corporation thus prepared for work must begin business within one year or forfeit its rights. In addition to the usual powers conferred by the general corporation law, savings-bank corporations have the power to receive on deposit any sum of money that may be offered for that purpose by any person, or society, or corporation, and to invest the same, and declare, credit, and pay dividends thereon, subject to limitations which will be explained hereafter. The number of persons to organize a savings-bank cannot be less than thirteen, as the law provides that there shall be a board of not less than that number, who shall have the entire management and control of affairs, and who shall elect from themselves or otherwise, a president and two vice-presidents, and other officers within their discretion. The thirteen persons named in the certificate of authorization constitute the first board of trustees. This board has the power of filling any vacancy which may occur in it, but no man can be elected a trustee who is not a resident of the State, and whenever a trustee removes from the State, he thereby forfeits his trusteeship. The constant supervision of the management of the savings-bank is ensured by the law, which prescribes that all the by-laws and rules and regulations of the bank, as drafted by the trustees, shall be transmitted to the Superintendent of Banks, and that no change or amendments can be made without his knowledge.
Trustees of banks must meet as often as once a month, and in order to secure the faithful performance of duty upon the part of officers and agents of the bank, they are permitted to ask bonds from such subordinates. As indicating the sedulous care which the State of New York exercises over the management of its savings-banks, the following two paragraphs are worth quoting entire:
“Whenever a trustee of any savings-bank shall become a trustee, officer, clerk, or employee of any other savings-bank, or when he shall borrow, directly or indirectly, any of the funds of the savings-bank in which he is trustee, or become a surety or guarantor for any money borrowed of or a loan made by such savings-bank, or when he shall fail to attend the regular meetings of the board, or perform any of the duties devolved upon him as such trustee, for six successive months, without having been previously excused by the board for such failure, the office of such trustee shall thereupon immediately become vacant; but the trustee vacating his office by failure to attend meetings or to discharge his duties, may, in the discretion of the board, be eligible to re-election.
“No trustee of any such corporation shall have any interest, direct or indirect, in the gains or profits thereof, nor as such, directly or indirectly, receive any pay or emolument for his services, except as hereafter provided; and no trustee or officer of any such corporation shall, directly or indirectly, for himself or as an agent or partner of others, borrow any of its funds or deposits, or in any manner use the same except to make such current and necessary payments as are authorized by the board of trustees; nor shall any trustee or officer of any such corporation become an indorser or surety, or become in any manner an obligor, for moneys loaned by or borrowed of such corporation.”
Regarding the repayment of deposits, the power regulating the time and method of payment is vested in the board of trustees, but the regulations must be of a permanent character, and must be conspicuously posted in the place of business of the corporation. The trustees are also authorized to limit, at their discretion, the aggregate amount which any person or society may deposit, and they may also refuse to receive any deposit or at any time return all or any part of any deposit. Lest the opportunity of savings-banks for safe investment and sure interest should be used too freely by the rich, for whom they are not intended, the law provides that the aggregate amount of deposits to the credit of any individual at any time shall not exceed $3000, exclusive of deposits arising from judicial sales or trust funds or interest; and that the amount to the credit of any society or corporation at any time shall not exceed $5000, exclusive of accrued interest.
THE PROTECTION OF DEPOSITORS—INVESTMENT OF DEPOSITS.
The advantages and protection which savings-banks offer to minors and to women are of much interest. It is provided that when any deposit is made by or in the name of a minor, it shall be held for the exclusive right and benefit of the depositor, and be free from the control or lien of all other persons except creditors, and shall be paid, together with dividends and interest thereon, to the person in whose name the deposit is made, and the receipt and acquittance of the minor who so deposits is a valid and sufficient release of such deposit or any part thereof. In all actions in any court of the State of New York against savings-banks by a husband to recover for moneys deposited by his wife in her own name, or as her own money, the wife may be examined and testify as a witness just as if she were an unmarried woman. One other section (116) of the savings-bank law of the State of New York may be quoted entire in order to give adequate information as to the manner in which the interests of depositors are guarded. The trustees of the savings-bank can invest the moneys deposited therein and the income derived therefrom only as follows:
(1) “In the stocks or bonds or interest-bearing notes or obligations of the United States, or those for which the faith of the United States is pledged to provide for the payment of the interest and principal, including the bonds of the District of Columbia.
(2) “In the stocks or bonds or interest-bearing obligations of this State, issued pursuant to the authority of any law of the State.
(3) “In the stocks or bonds or interest-bearing obligations of any State of the United States, which has not within ten years previous to making such investment, by such corporation, defaulted in the payment of any part of either principal or interest of any debt authorized by the Legislature of any such State to be contracted.
(4) “In the stocks or bonds of any city, county, town or village, school district bonds and union free school district bonds, issued for school purposes, or in the interest-bearing obligations of any city or county of this State, for the payment of which the faith and credit of the municipality issuing them are pledged.
(5) “In the stocks or bonds of the following cities outside of New York State: Philadelphia, St. Louis, Boston, Baltimore, Cincinnati, Cleveland, Pittsburg, Detroit, Milwaukee, Minneapolis, Louisville, St. Paul, Providence, Allegheny, Worcester, Toledo, New Haven, Paterson, Lowell, Scranton, Fall River, Cambridge, Grand Rapids, Reading, Trenton, Hartford, Des Moines, and Portland, Me. If at any time the indebtedness of any of the said cities, less their water debt and sinking fund, shall exceed seven per centum of its valuation for purposes of taxation, its bonds and stocks shall thereafter cease to be an authorized investment for the moneys of savings-banks, and the Superintendent of the Banking Department may, in his discretion, require any savings-bank to sell or retain such bonds or stocks of said city as may have been purchased prior to said increase of debt.
(6) “In bonds and mortgages on unincumbered real property situated in this State, worth at least twice the amount loaned thereon. Not more than sixty-five per centum of the whole amount of deposits may be so loaned or invested. If the loan is on unimproved and unproductive real property, the amount loaned thereon shall not be more than forty per centum of its actual value. No investment in any bond and mortgage shall be made by any savings-bank, except upon the report of a committee of its trustees charged with the duty of investigating the same, who shall certify to the value of the premises mortgaged, or to be mortgaged, according to their best judgment, and such report shall be filed and preserved among the records of the corporation.”
The savings-banks are permitted to invest in real property to the extent of owning their own bank building, which, with the lot, shall not cost more than twenty-five per cent. of the net surplus of the corporation, and of retaining for a time such property as may come into possession of the bank at sales upon the foreclosure of mortgages owned by it, or on judgments or other methods of settlement for debts due to it. Five years is the limit of time for which savings-banks can retain such property, other than their own banking house, unless they receive permission anew from the Superintendent of Banks. Even before they purchase the site of their bank building they must submit the plans of the building to be erected, with the estimate of the cost of the lot and building, to the Superintendent of Banks for his approval. The trustees are permitted to keep uninvested an available fund for current expenses, but this fund must not exceed ten per cent. of the whole amount of the deposits in the bank. This sum may be deposited in any bank organized under the law of this State, or of the United States, or in a trust company incorporated by any law of the State whose paid-up capital and surplus aggregates at least four times the amount of money deposited with it by the savings-bank. Another method of use for this current expense fund is provided by the law in the following words: “Such available fund, or any part thereof, may be loaned upon pledge of the securities, or any of them, named in the first four paragraphs of section 116, but not in excess of ninety per centum of the cash market value of such securities so pledged. Should any of the securities so held in pledge depreciate in value after making any loan thereon, the trustees shall require the immediate payment of such loan, or of a part thereof, so that the amount loaned shall at no time exceed ninety per centum of the market value of the securities pledged for the same.”
CAUTIONARY PROHIBITIONS AND LIMITATIONS.
The savings-banks in New York State are expressly prohibited from loaning money on notes, bills of exchange, drafts, or any other personal security whatever, and in all cases of loans upon real property, a sufficient bond, secured by a mortgage on the property, shall be required from the borrower, who must also pay all expenses incident to the transaction. The bank is further protected in its realty investments by the requirement that the mortgagor insure the property, and assign the policy to the bank, which also has the right to renew the policy of insurance from year to year, as it may expire, charging the expenses of the renewal in every case to the mortgagor. The only exception to the prohibition against dealing in commodities is that which permits banks to sell gold or silver received in payment of interest or principal of obligations owned by them, or from depositors in the regular course of business, or they may pay regular depositors, when requested by them, by draft upon deposits to the credit of the bank in the city of New York, and charge current rates of exchange for such drafts. No savings-bank can make or issue any certificate of deposit payable either on demand or at a fixed day, or pay any interest except regular quarterly or semi-annual dividends upon any deposits or balances, or pay any interest or deposit, or portion of a deposit, or any check drawn upon itself by a depositor, unless the pass-book of the depositor be produced and the proper entry be made therein at the time of the transaction. Within their own discretion and subject to the approval of the Superintendent of Banks, savings-banks are permitted to make payments in cases of loss of pass-book or other exceptional cases where the pass-book cannot be produced without loss or serious inconvenience to depositors.
REGULATION OF INTEREST TO DEPOSITORS.
The trustees must regulate the rate of interest or dividends, not to exceed five per centum per annum, upon the deposits in such manner that depositors shall receive, as nearly as may be, all the profits of such corporation, after deducting necessary expenses and reserving such amounts as the trustees may deem expedient as a surplus fund for the security of the depositors, which, to the amount of fifteen per cent. of its deposits, the trustees of any such corporation may gradually accumulate and hold, to meet any contingency or loss in its business from the depreciation of its securities or otherwise. The trustees may classify their depositors according to the character, amount, and duration of their dealings with the corporation, and regulate the interest or dividends allowed in such manner that each depositor shall receive the same ratable portion of interest or dividends as all others of his class. The trustees cannot declare or allow interest on any deposit for a longer period than the same has been deposited, except that deposits made not later than the tenth day of the month commencing any semi-annual interest period, or the third day of any month, or withdrawn upon one of the last three days of the month ending any quarterly or semi-annual interest period, may have interest declared upon them for the whole of the period or month when so deposited or withdrawn. Only upon an aye and nay vote by the board of trustees can dividends or interest be declared; and should any interest or dividend be declared and credited in excess of interest or profits earned by and credited to the savings-bank, the trustees voting for such dividend are liable for the amount of the excess. At least once in three years, all savings-banks whose surplus amounts to fifteen per cent. of its deposits must divide equitably the accumulation beyond such authorized surplus as an extra dividend to depositors, in excess of the regular dividend authorized.
In determining the per cent. of surplus held by any savings-bank, its interest-paying stocks and bonds must not be estimated above their par value or above their market value if below par. Its bonds and mortgages on which there are no arrears of interest of a longer period than six months must be estimated at their face, and its real property at not above cost. The Superintendent of Banks must determine the valuation of such stocks or bonds, or bonds and mortgages, as are in arrear of interest for six months or more, and of all other investments not herein enumerated, from the best information he can obtain, and he may change the valuation thereof from time to time as he may obtain other and further information.
The trustees of the bank who are chosen as officers of the institution, and whose duties require regular and faithful attendance, may receive such compensation as the majority of the trustees deem reasonable. When the vote is passed by the trustees fixing such amount, the trustee for whose services compensation is being allowed cannot vote, and trustees, as such, cannot receive any compensation whatever for their attendance at meetings of the board.
SUPERVISION, INSPECTION, AND REPORTS.
At all times, savings-banks are under the scrutiny and control of the Superintendent of Banks, and if it appears to him from an examination made by or reported to him, or from a report made by any such corporation, that it has committed any violation of its charter or law, or is conducting its business and affairs in an unsafe and unauthorized manner, he directs a discontinuance of such illegal and unsafe or unauthorized practices. Constant and thorough knowledge as to the assets of each savings-bank on the part of the trustees is required by the provision of the law that the trustees of savings-banks, by a committee of not less than three of their number, on or before the first day of January and July in each year, shall thoroughly examine the books, vouchers, and assets of their savings-bank, and its affairs generally. The statement or schedule of assets and liabilities reported to the Superintendent of Banks for the first of January and July in each year shall be based upon such examination, and shall be verified by the oath of a majority of the trustees making it; and the trustees of any savings-bank may require such examination at such other times as they shall prescribe. The trustees shall, as often as once in each six months during each year, cause to be taken an accurate balance of their depositors’ ledgers, and in their semi-annual report to the Superintendent they shall state the fact that such balance has been taken, and the discrepancies, if any, existing between the amount due depositors, as shown by such balance, and the amount so due as shown by the general ledger.
That the expenses which negligence on the part of savings-banks causes to the State may fall upon the savings-banks themselves, it is provided that for the purpose of defraying the expenses incurred in the performance by the Superintendent of Banks of the duties imposed upon him with respect to savings-banks, other than the examination thereof, each such corporation shall annually pay five dollars into the treasury of the State, and the residue of such expenses, to be apportioned among them by the Superintendent, shall be paid into the treasury of the State by savings-banks whose deposits exceed one hundred thousand dollars, in proportion to the amount of assets severally held and reported by them. Whenever any State bank or trust company becomes insolvent, its debt to savings-banks becomes a preferred liability, and is paid immediately after provision has been made for the payment of the circulating notes of the bank or trust company, if it has any, unless, in the case of a trust company, other preferences have been provided for in its charter. The interest of the State in savings-banks is further shown by the decree that no bank, banking association, individual banker, firm, association, corporation, person or persons can advertise or put forth a sign as a savings-bank, under penalty of severe punishment.
It requires the affirmative vote, properly recorded, of not less than two-thirds of the whole number of trustees, at a meeting called for the purpose, to close a savings-bank, and all moneys due depositors must be paid in full, or unclaimed deposits turned over to the Superintendent of Banks. The Superintendent then has the power to pay out such moneys to the depositors entitled to them upon satisfactory identification, and he must annually report to the legislature the names of all closed savings-banks, with the sum of the unclaimed or unpaid deposits to the credit of each of them.
OFFICIAL REPORTS OF CONDITION.
Under the law of New York State, there can be no doubt as to the thoroughness with which the conduct of each and every savings-bank is scrutinized. The details already given of the intimate relations between these institutions and the State can be verified upon examination of the law regarding the reports which savings-banks must make semi-annually to the State. These reports must be made on or before the 20th day of January and July in each year, and must contain a statement of its condition on the mornings of the first days of January and July preceding. The report states the amount loaned upon bond and mortgage, together with a list of such bonds and mortgages, and the location of the mortgaged premises, as have not been previously reported, and also a list of such previously reported as have since been paid wholly or in part, or have been foreclosed, and the amount of such payments respectively; the cost, par value, and estimated market value of all stock investments, designating each particular kind of stock; the amount loaned upon the pledge of securities, with a statement of the securities held as collateral for such loans; the amount invested in real estate, giving the cost of the same; the amount of cash on hand and on deposit in banks or trust companies, and the amount deposited in each; and such other information as the Superintendent may require. The report also states all the liabilities of such savings corporation on the mornings of the first days of January and July; the amount due to depositors, which must include any dividend to be credited to them for the six months ending on that day, and any other debts or claims against such corporation which are or may be a charge upon its assets. It also states the amount deposited during the year previous, and the amount withdrawn during the same period; the whole amount of interest or profits received or earned, and the amount of dividends credited to depositors, together with the amount of each semi-annual credit of interest, and the amount of interest that may have been credited at other than semi-annual periods; the number of accounts opened or reopened, the number closed during the year, and the number of open accounts at the end of the year; and such other information as may be required by the Superintendent. The president and cashier or treasurer of the savings-bank must take oath to the completeness and accuracy of the report, the failure to make which is punishable by a forfeit to the people of the State of one hundred dollars for every day that the report is withheld. Any savings-bank failing to make two successive reports forfeits its charter. An additional report which must be made to the Superintendent of Banks concerns the accounts of depositors of amounts of five dollars or more which have been dormant for twenty-two years or more from the first day of May preceding—that is, accounts which have not been increased or diminished by deposits or withdrawal, exclusive of interest credits. This report must be made by the first of June of each year, and negligence regarding it is punishable in the same manner as in the case of the main report of the bank.
METHODS OF OPERATING IN DIFFERENT STATES.
The method of operating savings-banks is not the same in all the States where they exist. In some they take the form of a society, with power to add to their membership, and with perpetual succession, a certain number of members are yearly chosen by ballot to act as managers; these managers elect their own officers, make rules and by-laws, and alter or rescind them at pleasure. In others the corporators are a limited number, and are themselves trustees, with power to fill vacancies, and are responsible for the management to State authority, to which they report for publication at regular intervals. In some they do business under special charters, in others under general laws to which every institution in the States conforms. This last system is growing in favor, as supervision is simplified so that superintendents or commissioners familiar with the one law can easily determine if investments have been made in prohibited securities or in too great amounts on permissible ones. The laws in the six New England States in relation to savings-banks are very similar, although in some banks the managers are more conservative in their practice than in others. All invest to some extent in United States bonds, in bonds and mortgages on real estate, in national or State bank stocks, State, county, city, town, or village bonds, loans on personal security, in railroad bonds, and some in railroad stocks.
In addition to the investments permitted by the laws of the State of New York, there are permitted to savings-banks, under the laws of the States of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and New Jersey, investments in the county bonds of other States; and New Hampshire, Vermont, and Rhode Island permit bonds and mortgages in the Western States. Maine permits bonds and mortgages beyond its own boundaries only, in the cities of the State of New Hampshire. Maine, New Hampshire, Vermont, Rhode Island, Connecticut, New Jersey, Pennsylvania permit investment in bank and trust company stocks; Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New Jersey, Pennsylvania, and Ohio in railroad stocks and bonds; Maine, New Hampshire, and Rhode Island in the stock of water companies; New Hampshire, Rhode Island, and New Jersey in gas company stocks; Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut in promissory notes; Connecticut allows investment in bonds and mortgages in four States outside its own jurisdiction; the State of Maryland allows savings-bank funds to be invested in stocks and bonds and mortgages without specifying exactly their character or location.
The limitation on deposits in Maine is $2000, and in Massachusetts the largest amount on deposit permitted to any one account is $1600. In no other State except New York is there any limitation placed upon the amount of deposits. In one savings-bank in Rhode Island there is one deposit amounting to $169,000, which, however, constitutes a fund intended for philanthropic purposes.
DIVIDENDS AND TAXATION.
The limit of dividends allowed in the State of Maine is 5 per cent.; in Vermont, 4½ per cent.; in Massachusetts, 5 per cent., and in the others there is no limit set up. The annual dividends paid in the year 1894 averaged, in Maine, 3.86 per cent.; in New Hampshire, 3.51 per cent.; in Vermont, 3.95 per cent.; in Massachusetts, 4.06 per cent.; in Rhode Island, 4 per cent.; in Connecticut, 3.86 per cent.; in New York, 3.53 per cent., and in New Jersey, 2.86 per cent.
Deposits in savings-banks are taxed, in Maine, seven-eighths of one per cent.; New Hampshire, one per cent.; Vermont, three-fourths of one per cent.; Massachusetts, one-fourth of one per cent.; Rhode Island, one-fourth of one per cent.; Connecticut, one-fourth of one per cent., and in the other States deposits are untaxed.
In Massachusetts the laws really forbid deposits above $1000, but allow interest to accumulate to the amount of $600 additional, making a total of $1600, the largest possible amount held in one account.
The official reports for 1894 show that the number of savings-banks in eleven Eastern and Middle States was 626, and the number of depositors 4,296,133. The average to each depositor was $367.39; the total amount of deposits was $1,578,352,728.00; and the total assets were $1,733,227,013.00; showing the surplus of assets over liabilities, $149,073,165.00.
The following statement of number of depositors and amount of deposits in the Eastern and Middle States and Ohio is compiled from the latest official reports for 1894:
The following statement of number of depositors and amount of deposits in the United States in 1894 and 1895, respectively, is taken from the Statistical Abstract issued by the Treasury Bureau of Statistics:†
SPECIAL FORMS OF SAVINGS FUNDS.
In addition to the regularly incorporated savings-bank, two railroads have established savings funds. The Baltimore & Ohio Railroad Company has established a savings fund in order to afford to employees and their near relatives an opportunity to deposit savings and earn interest thereon, and to enable employees to borrow money at moderate rates of interest, and on easy terms of repayment, for the purpose of acquiring or improving a homestead, or freeing it from debt. The company guarantees the repayment of deposits and the payment of interest at the rate of at least four per cent. per annum, unless changed by notice. If the net earnings of the savings fund exceed the guaranteed interest, dividends may be declared, and, as a matter of fact, depositors have regularly received no less than five per cent. on their investments. During the year ending June 30, 1895, the interest paid to depositors reached 5½ per cent. The rules governing the savings fund give: (1) An employee of the company, his wife, child, father, or mother, or the beneficiary of any deceased member of the relief feature, the privilege of depositing with the company any sum of money not less than one dollar and not more than $100 in one day, for the repayment of which, with interest, the company becomes the guarantor. Any person ceasing to be employed by the company may continue a depositor if his balance is fifty dollars or more at the time of leaving. (2) Any adult employee of the company, who is a member of the relief feature and has been continuously in the service not less than a year, may borrow from the funds of the savings feature sums not less than $100, at the interest rate of six per cent. per annum, payable monthly. It is, however, provided that every borrower must carry life insurance in the relief department equal to the sum loaned him; or, if the regulations of the relief feature prevent this, the borrower must hold a policy of equal amount in some regular life insurance company. The only purpose for which money can be borrowed is for acquiring, improving or releasing a lien, upon a home situated, except in large cities, within a mile of the railroad company’s lines. No loan is paid directly to the borrower, but is applied to the payment of bills approved by him. The repayment of loans is provided for by deductions from the monthly wages of the borrower of $1.50 for each $100 of the debt. If the borrower leaves the service of the company he must make the monthly payments at his own risk.
The plan of the Pennsylvania Railroad Company’s savings fund differs from that of the Baltimore & Ohio in several particulars, the chief difference being that the Pennsylvania makes no provision for loaning money to employees. Deposits may be made of sums, in even dollars, not exceeding $100 a month. The privilege of depositing is limited to the period of employment in the service of the company. If a depositor’s connection with the company be severed, his accounts must be settled within thirty days. According to the report of June 30, 1894, the savings fund of the Baltimore & Ohio was in debt to 1825 depositors to the amount of $780,668.42. The outstanding loans to the employees were $667,334.75. The deposits during the year were $227,861.11; the amount loaned within the year, $206,081.56. From August 1, 1882, when the savings fund was inaugurated, to June 30, 1894, the total deposits amounted to $2,220,334.28, and the total sum loaned to employees equaled $1,526,842.35. The money thus loaned was used upon houses—in building 813, buying 714, improving 159, and releasing liens on 329. The report of the Pennsylvania Railroad Company, December 31, 1894, shows that 4112 employees of that road were depositors in its savings fund. The total amount of the fund on that date was $1,354,748.33, and of this sum $1,300.000 had been securely invested in four per cent. bonds of the Pennsylvania Company or its allied lines. The company established the fund December, 1887.
The Paymaster-General of the United States Army reports that the United States Army savings fund has about $1,017,000 on deposit at the present time. It is impracticable to give the actual number of men who deposited, as some would deposit small sums regularly every pay-day, while others would not deposit more than once or twice a year, or perhaps during their whole period of enlistment. The fund, he believes, tends to lessen desertion, and in its operations is conducive to better discipline. Four per cent. interest is guaranteed to the depositors.
The Penny Provident Fund of the State of New York has 50,359 depositors, with a total of $31,000 to their credit, an average of sixty-one cents to each depositor. Of these deposits about $25,000 are invested in securities paying nearly five per cent. per annum. The balance is deposited in trust companies at three per cent. interest. The fund has two hundred and ninety-six stations, and pays no interest to depositors. This fund being chiefly used by children, is of great value in inculcating lessons of thrift and self-restraint. Savings in them are frequently made for special purposes; to buy shoes, hats, or clothing, or books, but more often recently, to save five dollars with which to open an account in a savings-bank.
The school savings-banks in the United States, which are located in sixty-nine cities, towns, and villages in the States of New York, Pennsylvania, Massachusetts, Ohio, Vermont, Maine, Indiana, New Jersey, North Dakota, Colorado, Kansas, and Michigan, comprise 1204 constituent banks, and have deposits amounting to $100,837.82. The plan has been introduced into 290 schools, located in twelve States. Though these banks pay no interest to depositors, their salutary influence has been amply proved, teaching the children, as they do, the uses and value of money. The 25,972 depositors in these banks comprise nearly one-half of the number of pupils attending the schools where the banks are located. When the depositor’s balance amounts to a sufficient sum, an account for the pupil is opened in a neighboring bank.
BENEFICENT RESULTS OF SAVINGS-BANKS.
As before stated, the savings-banks in the State of New York are managed upon a system which illustrates the welding of business and philanthropy into a great financial bulwark for the protection of the poorer classes, and the security of the community at large. It is because of the excellence of this plan as well as its general use in other States that its details have been dwelt upon at length. Savings-banks are essentially the banks of the poor; they were established for the benefit of the plain people, and for the purpose of concentrating and utilizing for the general welfare the odds and ends of money which would otherwise remain hidden away unused at the bottom of a trunk or other hiding-place. They are managed by trustees without salary, who can have no interest in the profits of the business, and who administer their affairs with disinterestedness and remarkable ability, sustained in their work of benevolence by a unanimous public opinion. Their funds are wisely and safely invested, the net earnings being credited to the depositors, whose savings are thus augmented by compound interest. The proceeds of labor converted into active capital by depositors are made in this way to produce a revenue without impairing or endangering the original sum, and to go on increasing while the owner is engaged in the production of other surplus savings. The beneficial results of savings-banks are both individual and communal, as well as direct and indirect. The direct benefits both to the individual and to the community must be evident from what has already been said. Indirectly, savings-banks are a great factor in the moral as well as the material growth of the people. The man or woman with a bank account, however meager its proportions, is usually a good citizen. Especially in this country, where opportunities are more nearly than elsewhere equal for all, do savings-banks exert a certain moral influence. The cares which accompany their use sharpen the mental faculties and tend to increase the moral perception of the individual; education is encouraged; patriotism is promoted; family honor, as well as local pride, is engendered; commercial enterprise stimulated; and much which makes for higher spiritual life secured.
The statistics of the number of depositors and the amount of their savings in the regular savings-banks of the eleven States, in the Pennsylvania Railroad, the Baltimore & Ohio Railroad savings funds, in the United States Army fund, in the Penny Provident Fund of the State of New York, and in the school savings-banks in twelve States, was as follows: Deposits, $1,581,636,981; depositors, 4,381,401. These figures prove the steady growth in the past years of the savings-bank principle and practice. The exact percentage of growth in the regular savings-banks between the years 1880 and 1895 is shown by the following table, giving savings-banks statistics in the eleven States for these fourteen years:
DECREASE OF DIVIDENDS AND INCREASE OF DEPOSITS.
On account of the cheapness of money, the returns on savings-bank investments have decreased in the past fourteen years, so that the average dividend paid to depositors has diminished from four and five per cent. in 1880 to three and one-half and four per cent. in 1894; but the deposits to the credit of individuals have increased owing to the accumulation of capital by the plain people, induced and fostered by opportunities furnished through the savings-banks, so that while in 1880 the average was $341.25 on each open account, it was in 1894, $367.39, and the number of open accounts increased from 2,416,280 to 4,296,133. The total deposits increased from $824,515,162 to $1,578,352,728. The surplus fund grew from $62,567.049 to $149,073,165. Investments in bonds and mortgages nearly trebled, increasing from $269,021,908 to $662,002,440. Because of the decreased income from United States bonds, investments in and loans on the same fell off from $199,675,922 to $130,425,578. The total assets were increased from $891,666,424 to $1,733,227,013. The number of banks increased but little; in 1880 there were 594, and in 1894 there were 626 savings-banks. The teachings of the savings-bank system have extended, as will be seen, for there are now a much larger number of people using them, the number of open accounts having increased by 1,879,853, and they are continuing in the same direction. This increase in the number of people who are able to deposit funds in savings-banks seems to contradict the theory that the “poor are getting poorer.” On account of the concentration of deposits in the older and larger savings-banks, the percentage of the expense of management to the total deposits does not increase. In the State of New York nearly one-half the deposits in savings-banks are in New York City, where are located twenty-five banks, and of these twenty-five, four banks have about one-half of the total deposits of the city.
In the State of New York there has been organized among its 125 savings-banks an association for mutual benefit, and delegates from every bank have elected an executive committee, which considers matters of benefit to all. Bills offered in the Legislature affecting savings-banks are considered by the executive committee of this association, and recommended or opposed according to their respective merits. The quality of securities proposed to be authorized by law for investment are discussed; and the safeguards attending the issue of bonds or other evidences of indebtedness issued by cities, counties, municipalities, etc., have lately attracted the attention of this association, and on account of the present lack of system regarding the issue of them, it has been recommended that the validity and genuineness of each and every such issue shall be certified to by a responsible trust company, in order to give proper guarantees of their validity. Bonds engraved by a responsible bank-note company have been recommended as another means of guarding against counterfeiting, to which printed and lithographed bonds are liable. In instituting such reforms as the foregoing, the association secures protection for officials who are responsible for savings-bank funds, as well as security for the investors, as a low rate of interest on valuable property is preferable to higher rates under questionable conditions.
UTILITY OF LARGE SURPLUS FUNDS.
Recently there have been some criticisms of the large surpluses held by some of the more successful savings-banks, and it has been suggested that this surplus money should be divided among the depositors. The framers of the law of the State of New York seem to have foreseen the possibility of such criticism, and to have wisely anticipated it by providing in Article III., Section 123, of the savings-bank law the following: “The trustees of any such corporation whose surplus amounts to fifteen per cent. of its deposits, at least once in three years, shall divide equitably the accumulation beyond such authorized surplus as an extra dividend to depositors, in excess of the regular dividends authorized.” The critics seemed to have overlooked both this law and the fact that no bank in the State at the present time has a surplus large enough for distribution under the law. A good-sized surplus in a savings-bank is not only a very desirable feature in itself, but is also valuable in its advantages and its influence. As a monument to the success of the institution, it gives confidence to depositors and encourages others to enroll themselves upon the bank’s ledgers. In case of sudden financial depression or of any unforeseen disturbance which might cause a run upon the banks, a surplus becomes a source of strength both to the bank and to the community. Moreover, in the year by year operations of the bank, the surplus plays a most important part. To-day the banks that pay the highest rate of interest, even paying four per cent., are the banks that have the surplus, because they could not take the moneys deposited with them now and invest them properly, and secure at the utmost more than 3¾ per cent. on the average. They are enabled to pay to depositors after all expenses of the bank are deducted, a higher rate of interest, simply because they have a surplus which earns interest for their benefit. Another reason that makes a surplus requisite is that it is needed to meet contingent losses in the depreciation of the value of securities. Hence the wisdom of the law which permits its accumulation to the extent of fifteen per cent. of total deposits.
The number of savings-bank depositors in the eleven States in which those institutions are located is equal to one-fifth of the total population; and the localities in which each of these institutions is located are freer from pauperism and crime than in other less favored communities; and to lessen the confidence of depositors in their places of financial trust by unwise legislation like the passage of a free coinage law by Congress, which would lessen the value of the dollar, would be a blunder on the part of law-makers which would tend to undermine a system which it has taken eighty years to build up. After the legal-tender act of 1862 was passed, deposits in savings-banks decreased largely, whilst after the resumption of specie payments in 1879, the percentage of increase was even greater than the withdrawals of seventeen years before. Confidence is a thing of slow growth; and in educating, it is necessary to show by example the teacher’s faith in the principles striven to be inculcated, viz., that honesty and thrift are the best policy; and as these lie at the foundation of savings-banks, the depositor must be made to feel that his self-denial will be rewarded by a return, of the full amount at least, of the money which he has denied himself the pleasure of spending in temporary gratifications; but if he finds that, owing to a depreciation of the currency, a fraction of its value only is given back when he calls for it, because the law has stepped in and confiscated for the benefit of a few any part of his savings, the fruit of the good principles inculcated will be blasted in a moment. The first effects would probably be a run on the bank, followed by extravagance and riotous living with the money withdrawn, which would end by lowering the moral tone amongst the class of people who up to that time had been so largely benefited.
WHAT SHOULD BE THE RATE OF DIVIDEND?
As has been said, the average gross income which a savings-bank can earn on new deposits to-day does not exceed three and three-quarters per cent., and from this the expense of management must be deducted, say one-third to one-half per cent., leaving the net income for depositors about three and a quarter per cent. If more than this is paid, it is out of the earnings of the surplus fund which has accumulated on the undivided earnings of older deposits. Most of the banks have a surplus, and because of it they do pay an average of three and one-half per cent. dividends; but this cannot continue indefinitely, unless a larger range of investments is authorized which will pay an increased rate of interest on the money put into them. The desire to continue or increase the present dividends has induced some bank managers to favor the amendments which authorize the purchase of city bonds in certain States outside of New York. But it may be questionable if it would have been better policy to prohibit savings-banks from paying more than three per cent. interest per annum, except that if one accumulates a surplus of ten per cent. on its deposits (estimating its securities at par value if they are worth it, or the market value if they are worth less), then, once in three years, it should pay an extra dividend on the balances of all accounts which have been in bank for that length of time. Let us consider the latter course. A savings-bank is prohibited by law from receiving on deposit from any individual, or paying interest on, a greater sum than three thousand dollars. The charge is made, and is not disproved, that large sums, in many cases three thousand dollars, are deposited by one individual in each of the several banks, or he opens accounts in trust and thus gets in one bank more than the law intended. This is not prohibited by law, but it enables a well-to-do person who should make his own investments to put the burden on trustees engaged in a benevolent work, and he secures the advantage of investment in first-class securities, and obtains more interest than if he attended directly to the management of his own capital. Now, savings-banks are not designed as resorts for capitalists when prime investments pay low rates of interest elsewhere. They may be likened to kindergarten schools, where the young, the helpless, and the uninformed may learn the advantages of economy and thrift, the good results of which are shown by the increased balances which added interest exhibits each half-year, and who should learn by a study of the results secured by wise and prudent management how they themselves may care for the accumulations when their sum surpasses the limit (not a small one) fixed by statute. This was the theory of the founders, and is the theory of the present law of the States, in forbidding the payment of interest on sums over three thousand dollars. Savings-banks are practically freed from taxation, because they are engaged in a purely benevolent work, for the good of the masses, and it is an evasion of the spirit of the law for the depositors of large sums to use them. An indication that they are using them is shown by an analysis of the following statements taken from the official reports of the Superintendent of the Banking Department of the State of New York for three decennial periods.
At the first date, 1868, about twelve per cent. of the population were depositors in savings-banks; in 1878, seventeen per cent.; and in 1888, twenty-three per cent. were depositors. The average amount to the credit of each had increased in twenty years from $281 to $381, averaging a hundred dollars increase for each depositor. The returns up to January 1, 1896, show a still increasing average. Now, it will not be claimed that the wage-earners, those dependent on salaries and wages, have increased from twelve to twenty-three per cent. of the population, nor that all together have been able to lay up thirty-five per cent. more of their earnings in 1888 than in 1868. Wages, salaries, and expenses were about on the same plane at the two periods, but first-class investments outside of savings-banks paid six to ten per cent. in 1868, while in 1888 the same class of investments paid but two and three-fourths per cent., and the same money deposited in savings-banks paid the depositor three and one-half per cent.
There is in England a law which prohibits a person from having an account in more than one savings-bank, under penalty of forfeiting his deposit. There is no such law in any of our States, and therefore there is no way of preventing investors with large capital from taking advantage of the savings-banks, which were designed solely for the benefit of the poorer classes. A shrewd investor of some thousands of dollars who insists upon gilt-edged securities only, at the highest obtainable rate of interest, and who wishes to avoid the fluctuations of the market in buying or selling, and at the same time to keep his money on call, deposits in the savings-bank. There he finds all his conditions complied with, the law of the State protects his property, and holds the bank’s trustees to a strict accountability. There appears to be a growing tendency to receive deposits of considerable amount, which cannot fairly be considered savings, of the kind for which savings-banks are chartered. This tendency, if unchecked, may result in changing the nature of the banks, and induce the Legislature to tax deposits, which will lower the rate of interest paid. The evil may then be cured, of course, by the applied remedy, but the principle having been violated, the result will be disastrous to the benefit of communities, the inducement will be taken away for the poor to save, and the acquisition to the ranks of good citizenship will be diminished.
GOOD RESULTS OF THE LAW OF 1875.
Savings-banks have prospered since the general law of 1875 was enacted, because under it they have been well and conservatively managed. No failures have occurred since the old wrecks came ashore which met with disaster before the law was enacted. We have had twenty years of prosperity, and no future calamity is feared, unless a reduction of dividends might be so classed. With first-class securities this is unavoidable, the rate of interest tends downward as the country increases in wealth. It seems, therefore, preferable that the regular rate of interest or dividends paid should be reduced to three per cent., rather than to further increase the range of investments. The rule for savings-banks should be, not to pay a higher rate of interest to individual depositors than the aggregate of deposits invested in large amounts can earn when put into strictly first-class securities. The rate suggested is a sufficient inducement for people to save, and inspires a feeling of the utmost security for the safety of their principal.
In addition to the examination of the books of the savings-banks as required by law, a practice has been instituted in this country by the Bowery Savings-Bank of having its books examined at regular intervals by a firm of public accountants. The practice has been found an excellent one. It makes “assurance doubly sure.” In closing their last semi-annual reports, submitted January 9, 1896, these public accountants write as follows: “We examined all vouchers for expenses and found same in order. During the past six months we have examined in detail the ledger balances representing the amount due to individual depositors, as on October 1, 1895, and, with the adjustment of some small clerical errors in interest, found the same in order and in agreement with the general ledger. There are no overdrafts to report on at December 31, 1895. We also compared some 9500 bank pass-books with the corresponding accounts in the depositors’ ledger, and found same in agreement. In our last report we mentioned that the president had instituted some excellent changes in the general routine of the business of the bank. We are pleased to testify that these changes continue to bear good fruit, and that the work of the bank is in excellent order.”
The employment of public accountants has been in vogue in England for some years, but has never been generally adopted in this country in connection with the work of savings-banks so far as known. As the merits of the plan become clearly understood, the employment of public auditors to supplement the work of the trustees of the bank and of the State Bank Department—that is, to examine the examination—will become a general custom.
It may be said that the depositors in savings-banks are relatively the best paid investors in the community. Their security is as nearly absolute as wisdom and law can make it, and the returns from the investments are regular and certain, subject to little or no fluctuation and untouched by the many causes which bring depression to holders of railroad and manufacturing stocks. Savings-bank depositors are the real capitalists of the community. Their money it is which is largely loaned on first mortgages at 4½ per cent. and upwards on the apartment and tenement houses in which they dwell, the churches they attend, the clubs, business stores and factories, the theatres and places of amusement they frequent. It is largely their money which is loaned to the city on its bonds for the construction of public buildings and docks, the purchase and improvement of public parks, and paving streets.
In many cases a parent or relative opens an account for a child at birth, the fact being kept a secret from the beneficiary, and not developed until the death of the person who has performed the good deed. It often becomes capital for a young man to commence business with; or, in the case of a daughter, it may serve as a marriage portion. While it is running, the identity of the beneficiary of the account may be quite unknown to the savings-bank; but if legislation should be enacted to deprive him of his rights, the bank could easily find a way to apprise him of the danger of loss. The accumulations of interest on these accounts is surprising in many instances, as the following memorandum, taken from the books of a well-known bank, will prove:
“In 1835, an account was opened in the bank by a deposit of $5. Further deposits were made up to April, 1849, when the total amounted to $705. At various other times between 1835 and 1850, $253.89 were withdrawn, leaving a balance (with accumulated dividends of $47.89) of $499. From 1853 to 1855, $500 was withdrawn, but when the last draft was made, the depositor’s book appeared to be overdrawn to the extent of $1, which may have caused him to lose his regard for the account, but he had overlooked the fact that there was due him at that time dividends amounting to $100.01, which had not been entered in his pass-book, and the bank really owed him a net balance of $99.01.
“This balance went on accumulating dividends for twenty years until 1875, when it became a dormant account and ceased to draw interest. The amount then due him was $343.25. Efforts were made from time to time to discover the owner of the account, but without success, until 1889, when he was found, a very old man, unable to work and living on the bounty of his children, totally unaware of the snug sum due him by the bank. This balance of $343.25 was paid to him in November of that year to his great delight and satisfaction.”
It does not seem to be generally understood that there are many savings-bank accounts that have been in existence and little used for even more than twenty years; but they exist, and every bank has a large number of them. Because of the fact that they do exist, legislators have been led to suppose that such accounts had no legal claimants, and bills are offered yearly making inquiries about these old accounts. Even the Constitutional Convention in the State of New York two years ago seriously thought of putting a clause in the new constitution confiscating to the use of the State moneys which had been unclaimed for twenty years or more. The Banking Department of the State of New York, at the request of the convention, made inquiry, at the time, of each of the banks of that State; and when it was found that the number of accounts without claimants within the twenty-year limit was comparatively few, the idea was abandoned.
The secrecy which depositors wish to have observed with regard to their transactions with savings-banks does not seem to be taken into account by legislators in their eagerness to enact laws. Existing notions with regard to these accounts have caused many of the savings-banks to seek out the owners of these old accounts, and request them before the expiration of twenty years to make a deposit or a draft, so that the accounts may be revived and not become “dormant.”
CAUSE OF INCREASE IN DEPOSITS.
The increase in the average amount of individual deposits is caused by the banks’ receiving large amounts from individuals. There is no doubt that many people who formerly invested in stocks and bonds, and on bond and mortgage, have divided their funds by putting into each bank as much as would be taken, and thus swelled the aggregate of all the banks. This proceeding is unavoidable, as there is no prohibition against one person opening an account in every bank that will receive it; and one person may have the legal limit in every bank and thus have many thousands on deposit when they are aggregated, although he is prohibited from having more than $1000 to $3000 in any one bank. The limit in the United Kingdom is £300 sterling, or $1500; in France, the limit is F. 2000, or $400; and if the same person has a deposit in more than one bank the penalty is, in the United Kingdom, forfeiture of the whole deposit or benefit to the Government; in France, the deposits will be returned without interest and the depositor will be forever excluded from the savings-banks.
For the reason that, as has been said before, new deposits can only be invested here to earn from 3⅝ per cent. to 3¾ per cent. interest, it has been suggested that deposits of many years’ standing should be allowed a greater rate of interest than more recent ones, because they helped the bank to earn the surplus which enables it to pay high rates of interest; but as it would require very complex calculations, the idea has never been put in practice.
Within the past few years investments in railroad and other securities have become so precarious that many people have striven to place their accumulations in savings-banks, so good was the reputation of these institutions. Here they could secure the greatest safety as well as the highest rate of interest—the savings-banks, on account of their surplus, being able to pay depositors a higher rate of interest than their money alone could actually earn upon investments made to-day. This condition of things, however desirable in itself, gives rise to danger. People are attracted to savings-banks for whom the banks were never intended to be used. Large sums are offered to the savings-banks, and although some of the institutions consent to receive them, it is a matter of doubtful expediency. Not alone does the accommodation of such people divert the forces of the savings-bank from the true channels, but it also makes the bank liable to sudden drains upon its available money. These depositors, who use the savings-bank purely for investment, are always ready to avail themselves of a better investment if one appears, and in the case of a panic, when all securities go down in value, they come eagerly to the bank to secure their money, in order to buy securities which are selling below their value, and which must, as soon as the panic subsides, return to their higher and normal value. It is at just such times that the bank itself needs ready money. Large depositors should be discouraged, because, as a rule, they come from a class who know how to invest their own money, and they should not ask trustees who serve as benefactors to invest their money for them, nor should savings-banks, which were founded for philanthropic purposes, and which in carrying out their purpose are relieved of taxation, permit their institutions to be used for speculative purposes. This question is easy to manage when the amount of the deposit received is kept down. When only small sums are received at a time, savings-banks are, as a rule, serving the class for whose benefit they were intended—that is, those who have not sufficient knowledge of financial affairs to invest their money for themselves profitably.
During the last twenty years there have been but few important failures among the savings-banks of the East. In their rapid increase previous to the War of the Rebellion it is not surprising that many errors and abuses crept in—for which atonement has long since been made in loss and disaster. The multiplication of savings-banks in the early sixties was stimulated by the evidence of prosperity, and the competition for patronage became more and more active and demoralizing. In the management of some institutions the old landmarks of safety seemed to be altogether obliterated. The question of security seemed to be secondary, or to have been lost sight of altogether. Young institutions, conducted more in accordance with the requirements of such a trust, were feebly maintained at the expense of the trustees, or showed a deficiency of income, which enlarged from year to year. But the real conditions of weakness and premature decay were obscured by the glamour of apparent prosperity elsewhere prevalent. The shock which came just previous to the panic of 1873, and the protracted trial which followed, from which we have not yet fully emerged, have rudely dispelled the illusion with which so many were beguiled.
What more natural, what more inevitable than that this period of trial should prove disastrous to the fortunes of very many savings-banks? The wonder is, not that some score or more in New England and New York were forced into liquidation, but that any could survive the tests of this protracted season of financial depression. At the time, much intemperate speech was indulged in concerning trustees, whose only crime was that in their ignorance they had accepted a trust the responsibilities and difficulties of which they understood little, but the duties of which they had endeavored to discharge, at no small cost to themselves in time, labor, anxiety, and money. Of course, not all were so innocent and guileless. This season of trial became a judgment-day not only for institutions weak from their inception, weak from very necessity, but for those which, once strong, had been made weak by inexcusable faults in their management.
In whatever aspect viewed, the employment of industrial force in promoting public improvements and in the creation of public wealth, confers lasting benefits upon society, if integrity and economy govern in the administration of affairs. Whatever, then, facilitates this employment is a social force to be respected and honored, to be protected and surrounded by safeguards. Savings-banks, as reservoirs of capital, are this social force. They make it possible to borrow these tokens of industry offered for practical uses, and thereby to summon industry to further conquests in behalf of the good of mankind.
[† ] This Treasury report includes not only all the savings-banks which the Author has taken into consideration, but also the savings-banks of the West and South; which are organized with capital, have stockholders, take any amount on deposit, and invest the funds in many instances as the directors please. Those institutions are not to be classed with the true savings-banks of the Eastern and Middle States, which have no capital, and whose assets and surplus are held for the benefit of depositors only.