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the bond house and the savings bank are engaged jointly in the transfer of given funds from savers to borrowers-that their work begins at opposite ends and that they meet part way in the process.

When viewed from the standpoint of organization and control, savings banks are of many different types. Many of them are organized on a mutual basis, and are hence very similar to the co-operative institutions discussed in chapter viii. Many of them are semiphilanthropic in their nature; some are organized and operated by the government; while others are private enterprises conducted on strictly business principles. The regular "commercial" banks have also entered the savings field, and the great majority of them now have their savings departments. Insurance companies are also a form of savings institution.

The bond houses, or investment banks, are likewise of numerous types. Some assume in a large way the financial risks of industry, while others are mere purveyors of securities for a price. The process of bond distribution has come to involve several stages which are now clearly differentiated, each involving its special problems. The bond business has grown to enormous proportions, it being estimated that in the neighborhood of $2,000,000,000 of bonds are marketed annually in the United States. Investment institutions are therefore quite as important in the conduct of modern business as are commercial banks. In fact, they occupy a more commanding position in the financial world, and it is in connection with these institutions that the great problem of concentration and control, or the "Money Trust," arises. Treatment of this phase of the subject, however, is reserved for the concluding chapter.

A. Savings Institutions

200. TYPES OF SAVINGS INSTITUTIONS

BY WILLIAM H. KNIFFEN, JR.

We may roughly classify savings institutions into: first, mutual (trustee) or philanthropic; second, stock (including "savings and trust companies"); third, co-operative or democratic, as exemplified in the co-operative banks of Europe. The first are usually managed

Adapted from The Savings Bank and Its Practical Work, pp. 52-61. (The Bankers' Publishing Co., 1912.)

by a self-perpetuating body of trustees who do not share the earnings; the second are managed by the directors elected by the stockholders the third are managed by officials elected by the members.

The distinguishing characteristic of the trustee savings bank is mutuality. All the earnings, less reasonable administrative expenses and the apportionment to surplus or guaranty fund, are divided among the depositors in the form of interest.

If we were to trace the savings bank idea back to its origin we should, in all probability, find that it had its beginning in the "sick and aid" and other friendly societies which have existed for centuries in many parts of Europe; for the savings bank is simply the culmination of the attempts of thrifty people to provide for the rainy day. Workmen in all parts of the world have organized societies among themselves whose fundamental purpose has been to save a part of their earnings for slack times, sickness, old age, and death. Such organizations have been formed with no other purpose than to accumulate a fund to properly celebrate Christmas and other holidays, or to finance, in an easy manner, an annual picnic or similar occasion. A small amount of dues is usually required, and these contributions, enhanced by the proceeds of an annual ball or outing, provide the fund from which sick benefits, funeral funds, etc., are paid. Some of these societies even go so far as to make a division of the whole amount on hand at the close of the year and then begin over again. The social features no doubt form an added attraction, inasmuch as the opportunity for rest and recreation is an inducement to join. The organization is often, even in this day, connected with a church, and in many instances, if not all, is productive of much good.

It will readily be seen that any movement by which individuals combine their resources for mutual investment for mutual advantage is, in its essence, a savings bank. Building and loan associations, industrial insurance, fraternal societies, labor organizations, and pension plans are all, in the final analysis, but modifications of the savings bank idea. The difference between the savings banks and such organizations lies in the fact that the savings bank never requires any fee for joining or dues or fines for failure to contribute. The management is perpetual, and, except in a few states, the members have no voice in the selection of the managing officials, who do not change except by death or resignation.

The stock savings bank, where it is a savings bank, and not a bank of discount under a savings title, differs in no essential degree

from the mutual institution. The mutual bank belongs to the depositors, the stock bank to the stockholders. The mutual bank pays dividends to depositors only; the stock bank pays dividends to both stockholders and depositors. The stock bank does not pretend to be philanthropic in its management. It is purely a business proposition, and where the investments are of the accepted savings bank type, it can justly claim to be on a par with its mutual friends, provided, of course, that it measure up to the standard in its management.

As is implied in the term "stock," it issues capital shares and pays dividends thereon. It has, therefore, the added protection of the stockholders' liability, which, together with the accumulated surplus, affords the element of strength so necessary in all financial concerns. It usually pays the depositors a stipulated rate of interest, and the profits beyond this belong to and are distributed to the stockholders as dividends. The partnership idea is entirely lacking, and the depositors get what they bargain for, while the surplus goes to those who invest, not necessarily their savings, but their capital, and assume all risks of the business. It could not in law or equity "scale down" its deposits to make good any losses—a feature peculiar to the mutual institution.

In this respect one thing is certain: In so far as safety is concerned, especially in a young bank, the stock bank with the stockholders' liability is surely superior to the mutual unless the trustees of the latter are of such high order and of such financial worth as to be able and willing to assume the burden of any losses that may accrue until the surplus or guaranty fund affords ample protection. This has not usually been the case.

New Hampshire is the only state in which "guaranty savings banks" will be found. These are a combination of mutual and stocka cross between the two. They do not transact a commercial business, being strictly savings banks in their functions, yet having "special deposits," which to all intents and purposes are capital stock. “The guaranty savings bank differs from the ordinary mutual savings bank in that it has capital stock, or special deposits, as they are called. It pays a certain stipulated rate of interest to its general depositors and any surplus of earnings above this dividend is available for dividends on the capital stock or special deposits. These special deposits constitute a guaranty fund for the general depositors, and the charter ordinarily stipulates that the special deposits shall always equal 10 per cent of the deposits.

"The special depositors of a guaranty fund in any savings bank incorporated and doing business under the guaranty system may vote to increase the said guaranty fund at any meeting of the special depositors called for that purpose. The amount of the increase or addition to said fund may be subscribed for and taken by the special depositors of said fund in proportion to their special deposits or by other parties in case of failure of said special depositors to take and pay for said increase or addition within ninety days. Said increase or addition to the guaranty fund may be on such terms of preference over the original fund, as to dividends, and in distribution of assets as shall be determined by vote of the special depositors at the meeting when such increase or addition is voted."

In thus agreeing to pay a stipulated rate of interest upon deposits one of the fundamental principles of mutual savings banking is violated, and these "special deposits" are therefore in the nature of capital stock. One of the underlying principles of the savings bank is this: Interest to depositors shall only be paid as it is earned, and only that which is earned can be paid.

This is not to say that "guaranty" institutions are not savings banks in every sense of the word, but the strictly mutual feature is lacking in the specializing of part of the deposits and paying a higher rate of interest on these deposits.

201. MUTUAL SAVINGS BANKS IN THE UNITED STATES'

The reports of the 634 mutual savings banks in the United States as of June 30, 1914, show a total of 8,277,359 depositors and an average deposit account of $473.05. The statement of total resources and liabilities is as follows:

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Adapted from Annual Report of the Comptroller of the Currency, 1914, I,

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Mutual savings banks are confined chiefly to manufacturing centers and towns of the New England and Eastern States, there being only 23 reporting institutions of this character in other sections of the country, viz.: 1 in West Virginia, 3 in Ohio, 5 in Indiana, 5 in Wisconsin, 8 in Minnesota, and I in California.

The average rate of interest paid to depositors in mutual savings banks in 1914 was 3.86 per cent, against 3.94 per cent in 1913. The highest rate is paid by the West Virginia banks, 4.5 per cent, and the lowest average by the banks in Pennsylvania, 3.57 per cent. An average of 4 per cent is paid depositors in mutual savings banks in Massachusetts, Rhode Island, Delaware, Indiana, and California. The average rate paid by mutual savings banks in the New England States is 3.90 per cent, in the Eastern States 3.70 per cent, in the Middle Western States 3.68 per cent, and by the one bank in California 4 per cent.

202. STOCK SAVINGS BANKS IN THE UNITED STATES1

A large number of so-called savings banks transact chiefly a commercial business and carry very few savings accounts. In those states where savings-bank reports are not separately compiled by the state banking departments, but classified with commercial banks, care has been exercised in eliminating from the classification made by this office all so-called savings banks which are chiefly banks of discount and deposit, transacting only a minimum of savings-bank business.

The resources and liabilities of the 1,466 reporting stock savings banks were as follows:

I

Adapted from Annual Report of the Comptroller of the Currency, 1914, I, 89–90.

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