The Online Library of Liberty

A project of Liberty Fund, Inc.

• A History of Banking In Great Britain;
• Chapter I.: Banking In England.
• Section I.: A Record of Beginnings.
• Section II.: Foundation of the Bank of England.
• Section III.: An Era of National Development.
• Section IV.: State of the Irish Currency.
• Section V.: Failure of Currency Reform—inflation and Reaction.
• Section VI.: The Committee On Banking of 1840.
• Section VII.: On the Bank Acts of 1844 and 1845.
• Section VIII.: Commercial Crises.
• Section IX.: Monetary Panics.
• Section X.: General Conclusion.
• Chapter II.: Banking In Scotland.
• Chapter III.: The Theory and Mechanism of Banking.
• Chapter IV.: Definitions of Economic Terms.
• Chapter V.: The Theory of Value.
• Section I.
• Section II.
• Section III.
• Chapter VI.: The Theory of Credit.
• Section I.
• Section II.
• Banking In Russia.
• Chapter I.: The Early Stages of Money and Credit.
• Section I.: Prefatory.
• Section II.: Introduction of Paper Money.
• Section III.: Financial Reconstruction Under Alexander II. And the Founding of the State Bank.
• Chapter II.: Methods and Operations of the State Bank.
• Chapter III.: Banking Vicissitudes From 1862 to 1875.
• Chapter IV.: The Eastern War Period.
• Chapter V.: Private Banks.
• Chapter VI.: The Bourse.
• Chapter VII.: The Precious Metals.
• Chapter VIII.: Foreign Exchanges.
• Chapter IX.: The Debt and Finances of Russia.
• History of Savings-banks In the United States.
• I.
• II.
• III.
• IV.
• V.

II.

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:

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:

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.