mallet to ricardo
[Answered by 517b]
Upper Gower Street 24 Feby. 1823.
My dear Sir,
Mr Hume has given notice of a motion relative to Savings Banks, which has excited the attention of some of the principal Managers of these Institutions in London, and given them some anxiety. In the first place, we think that a habit of minute regulation, and of frequent Legislative interference is unfavorable to the experiment we are trying.
So far as could be collected from Newspaper Reports, Mr Hume’s observations related to the rate of interest granted by Government to Depositors in Savings Banks, which he seemed to think unreasonable and wasteful. But I did not understand whether the observations were intended to apply to the rate of interest originally granted, or whether Mr Hume thought that the circumstances of the Country, or the state of the Banks, called for a reduction of the rate of interest.
On the first supposition, I should beg him to observe, that altho’ the rate of interest originally granted and now enjoyed by the Banks £4.12 per cent was beneficial as compared with the rate of interest on other Public Securities, it was not materially so; the 5 per cents being then (June 1817) at 104¾ or 105 the 3 per cent consol. 74. Then there are comparatively speaking, a few cases only in which the Depositors receive the whole amount of the interest granted by Government; the expenses of management of the Banks being generally defrayed out of the allowance of interest. The Depositors in two of the largest Banks in London, receive a rate of interest, not exceeding £3.17 per annum, which is in fact less than the interest they would have received had they invested their money in 3 per cent consol. If it be asked why so large a deduction is made, and why Government should bear this expence, the answer is that it is incidental to the proper management and security of such Establishments in large towns; and particularly in London. It is of the greatest importance that the Persons who conduct these Institutions should be men of the greatest respectability and at the same time, men of business. I speak from long experience when I say that it is extremely difficult to find Persons of this description who can give up any part of their time and that those with whom I am acquainted, and who attend to the Saving Banks in the City and in Southampton Row, are considerable Merchants, or men engaged in active professional pursuits. Now, when it is considered, that from the year 1817 to the year 1822, 6472 accounts were opened at the Bank in Southampton Row; which accounts must be kept with the greatest regularity, checked with the Depositors Book, the interest computed, the repayments entered; when it is further considered that notices of every repayment are to be given at least a week previously to the receipt of the Money; that these notices are all entered, and contain the particulars of the name and situation of the Depositor, his place of residence, the amount of his deposit; and that they are to be compared with the original entries of the Depositor, the signature of the depositor, and the Ledgers: it may easily be conceived, that independently of the labour of the Cash transactions of the Bank, which partly occupy 2 or 3 Managers and four Clerks, twice in the week, the business of such an Establishment cannot be conducted without efficient and regular assistance; other than can be expected from the Managers themselves. But this is not all. The actuary and Clerks are necessarily entrusted to a considerable extent with the custody of Money; and we therefore require securities: their salaries are therefore necessarily higher. Again, convenient and large premises are required; both with reference to the great number of Persons who attend the Bank, and the number of Ledgers and Desks in constant use, and the propriety of decent accommodation for the Managers. Under all these circumstances, a large deduction from the rate of interest granted by Government seems unavoidable.
On the second supposition: namely that the circumstances of the country or of the Banks, or both, are so far altered, as to require a reconsideration of the rates of interest, I should say that the present state of Public Securities, affords no grounds for any change in this respect. The price of 3 per cents is the same as it was when the 57 Geo. 3d. Ch. 130 was passed: and in proof of the greater advantage derived from investments in Stock, I would mention that a great number of the larger Depositors in Savings Banks in London, have lately withdrawn their deposits, to place them in the funds. Our repayments for several weeks have exceeded by several hundred Pounds every week the amount of our receipts. With regard to the large accumulation of deposits in Savings Banks, amounting to several Millions; and the idea generally entertained that a portion of these deposits are received from an improper description of Persons, I beg leave to observe with reference to my former remarks, that Depositors do not at present derive, and are not likely to derive any advantage from depositing their Money in Savings Banks instead of purchasing stock; and that this is not therefore a proper time for proposing any alteration in the rate of interest granted by Government. The sacrifice made by Government has been inconsiderable; particularly with reference to the great importance of the experiment now going on, and to the excellent effects which have already resulted from the Establishment of these Institutions. I think I may safely refer to the enclosed Report in support of this opinion.
Upon the whole I cannot but conceive that the agitation of the question as to Government keeping the terms upon which the Banks have been established, cannot but be productive of harm; and that any alteration in those terms would greatly check the progress of these useful Institutions, shake confidence and embarass and discourage to a very great degree, the Persons who have devoted to them so much of their time and attention.
Convinced as I am that Mr Hume has no other object than the Public good in view, I trust that if you will have the goodness to communicate these observations to him, he will not be unmindful of the circumstances to which I have taken the liberty of requesting your attention.
Believe me my dear sir Your’s very faithfully
J. L. Mallet