RESOURCES Loans secured by unencumbered and improved farm land..$ 81,687,839.74 Loans secured by other real estate. ... Loans secured by bonds and stocks. Loans secured by other collateral. Time loans without collateral.. Demand loans without collateral. Overdrafts.... 397,148,757.22 63,654,596.86 26,975,376.20 III,304,613.25 21,801,526.69 127,053,539.76 1,911,402.00 521,088.75 24,062,789.82 13,619,458.71 4,923,590.42 966,252.63 1,101,264.60 The depositors in stock savings banks number 2,832,140, of which 2,228,020 are savings depositors and 604,120 have commercial accounts. 203. SAVINGS IN NATIONAL BANKS1 Although a few of the national banks had had savings departments in 1903, there was considerable apprehension on the part of many as to the legality of accepting savings deposits. During that year Comptroller of the Currency Ridgely gave an official opinion in answer to a request from a western banker relative to whether a national bank could legally operate a savings department: "In reply to your letter relative to the right of a national bank to operate a savings department, you are respectfully informed that 1 From Annual Reports of the Comptroller of the Currency, 1912 and 1913. there does not appear to be anything in the National Bank Act which authorizes or prohibits the operation of a savings department by a national bank. "Many national banks pay interest on deposits, the receipt of such deposits being evidenced either by entries in the passbooks of the depositors or by issue of certificate of deposit, as may be preferred. Deposits of this character must be shown in the reports of the bank, and loaned in the manner provided by the National Bank Act. This would prevent a national bank from accepting real estate collaterals, which are deemed judicious for savings banks. All deposits, however, in a national bank are payable on demand, except when the subject of special contract, but the right of a bank to make a contract of that nature is a matter for judicial determination. "The expediency of a national banking association organized for the purpose of doing a business of discount and deposit engaging in the business of a savings bank is one for consideration and determination by the board of directors." By reason of the strong competition for deposits, and incidentally the payment of higher rates of interest on savings than on other accounts on the part of trust companies and other State banking institutions, the establishment of savings departments or the payment of interest on savings accounts by national banks has notably increased until at the present time about 45 per cent of the banks have taken that action, as shown by the reports relating to the number and volume of savings accounts. On August 9, 1913, the Comptroller reports the number of savings depositors in national banks as 3,020,831, the aggregate of deposits as $820,639,410.68, and the average deposit as $205.50. 204. THE REGULATION OF SAVINGS BANKS' BY HOMER HOYT Legislation on the subject of savings banks varies greatly in different states; in some there is no legislation at all, while in others we find excellent provisions for the safeguarding of the business. In the eastern states particularly, where the mutual savings institutions have long been in existence, we find the best-developed laws on the subject. The New York law has served as a model for that 'Adapted from an unpublished thesis on "Savings Banks and the Treatment of Savings Bank Deposits in the United States." of many other states, and it may therefore be taken as typical of the best regulation we have. A savings bank in New York is defined by the statutes as: “A corporation duly authorized by the laws of this state to receive money on deposit and pay such rates thereon and to invest the same in such securities as may be prescribed by law." Since savings banks are investment concerns, the easiest and most effective way in which they can be safeguarded by law is to restrict the investments which are lawful for a savings bank to make. By refusing to sanction investments in doubtful enterprises and stocks and bonds of a fluctuating or uncertain value laws can secure the comparative safety of invested funds. New York has taken the lead in such legislation. In the restriction of investments there have been two opposite forces at work. On the one hand there has been a tendency toward restriction, to insure the absolute safety of savings bank deposits; and, on the other hand, the call of the higher interest has proven very seductive. It does not do to go too far on the side of restriction and to narrow the field of investment to United States bonds, for then the interest would be so low that few wage-earners would be encouraged to save. The reward of saving should be as high as possible, and the most lucrative bait should be offered at the outset to tempt the marginal depositor. It is far more dangerous, however, to go too far in the other direction. Savings bank investments must be the safest of all investments. It is believed that more depositors are attracted by the consideration of safety than by offer of interest. Hence industrial stocks and bonds paying 8 or 9 per cent, while possible for the ordinary investor, are not conservative enough for the savings bank. The operation of these opposite tendencies-the one constantly to narrow the field and the other to widen it--has established an equilibrium at about 3 per cent and 4 per cent. At this rate it is possible to secure a gilt-edged bond of a corporation which in all probability will never pass the dividends or default payment. In late years, however, it is becoming more difficult to maintain the old 4 per cent interest rate in New York State. The interest rate on high-grade bonds has steadily declined until those now for sale in the market yield even less than 4 per cent. There are four reasons to explain why the old savings banks have been able to continue paying the high dividend of 4 per cent to depositors in spite of the increasing difficulty of getting bonds which pay more than 4 per cent: 1. The older banks have accumulated a large surplus from their investments in the bonds of several decades ago which bore a higher rate of interest, the income from which creates a fund to be divided among depositors. 2. The banks still carry many bonds purchased a number of years ago which bear high interest rates. These bonds are rapidly coming to maturity and are being replaced by bonds with a lower income yield. 3. The interest on a number of dormant accounts helps to maintain the higher rate. 4. The practice of fixing dividend periods excludes many deposits, and thus increases the rate for the rest. The law in regard to the investment of funds may be summarized as follows: 1. In the bonds of the United States and New York State. 2. In the bonds of other states which have not defaulted within ten years. 3. In the municipal bonds of New York State municipalities. 4. In the bonds of any city in a state admitted to statehood prior to 1896, and which has not defaulted on any of its bonds since 1861. The debt of such a city, however, must not exceed 7 per cent of its assessed valuation. 5. In first mortgages on real estate in New York State. Such mortgages must not exceed 60 per cent of the value of the improved property or 40 per cent of the value of the unimproved property. 6. In the first mortgage bonds of strong railroads which have paid for at least five years dividends at the rate of 4 per cent on their stock, but the stock must be at least equal in amount to one-third the debt of the road. 7. In the first mortgage bonds of railroads in New York on the same condition. Not more than 25 per cent of the deposits shall be invested in railroad bonds and not more than 10 per cent in the bonds of any one road. 8. Cash to the extent of 10 per cent of the total deposits may be kept on hand or on deposit with state or national banks or trust companies. 9. The trustees may loan this cash if they prefer on collateral, but the collateral must consist of such bonds as are enumerated in sections one to seven above, and the loan must not exceed $90 to every $100 of collateral at its market value. If the securities decline, the savings banks must demand payment of the loan or an increase of the security. Stated negatively the law is as follows: 1. A savings bank cannot loan money on notes, drafts, bills of exchange, or on any personal security whatever. 2. A savings bank cannot buy stocks of any kind. 3. A savings bank cannot buy bonds or other securities of any industrial, manufacturing, or street-railroad company. 4. A savings bank cannot buy or loan money on farm lands or on mortgages outside of New York State. 5. A savings bank cannot buy any bonds that are not first mortgage in whole or in part. Even such strong bonds as the New York Central or Lake Shore debentures or collateral trust bonds cannot be bought. 6. A savings bank cannot buy any real estate, bond, or mortgage, except after a full and complete examination of the property by a committee of trustees. Furthermore, it is a practice of the New York savings banks to invest only in registered bonds. Practically all the cash of a New York mutual savings bank except such amounts as may be required for current needs is kept on deposit in the vaults of the trust companies. When a run begins the bank is entitled to refuse to pay cash to depositors, except after a sixty-day notice. This gives the savings banks time to transfer their funds from the trust company into their own strong boxes. In the panic of 1907 the rule was enforced in October. Thousands of frightened depositors gave notice. After the expiration of the time. limit in December something like eight million dollars were drawn out. At the same time savings bank deposits in trust companies decreased from twenty-seven million dollars to eighteen million dollars, showing that the savings banks drew on the trust companies for the cash with which to pay depositors. 205. LIQUIDITY NEEDED IN SAVINGS BANK INVESTMENTS1 BY GEORGE E. EDWARDS During the last two decades there has been a rapid growth in the deposit liabilities of savings institutions, caused, not entirely by the deposits of the thrifty, but in a large measure by the deposit of investment funds of the comparatively rich. To be prepared to meet in times of stress the demands of both classes of deposits causes much anxiety to savings bank managers. There is, therefore, no question before the bankers of the country today commanding more thought and attention than the liquidity of loans and investments. The savings banker is equally interested with the commercial banker in securing for his depositor a full 'Adapted from "Liquidity of Savings-Bank Investments," Journal of American Bankers' Association, VIII (1915), 223–24. |