SAVINGS’ BANK DEFALCATIONS.

It is exactly fifty years ago since the clergyman of a little town in Bucks circulated among the poorer part of his parishioners a proposal, which excited the ridicule of many and the apprehension of not a few. “If any inhabitant of Wendover chooses,” said he, “to entrust me with any amount of his savings, in sums of not less than twopence at a time, I shall be happy to receive the money, and to repay the sum to him next Christmas, with an addition of one-third upon the amount of his deposit.” It was some time before the population of Wendover could be brought to understand the value of the proposal; but it was still longer before its universal application became appreciated. Five years elapsed ere any similar institution rose into existence: then a “Charitable Bank” was opened at Tottenham, by a lady named Priscilla Wakefield, assisted by six gentlemen, who undertook from their private purses to allow five per cent. interest on the deposits. Three years passed, and another society upon the same principle was formed at Bath. After this, the eyes of the public began to be opened; and by 1816, there were established in England seventy different Savings’ Banks; whilst Wales boasted of four, and Ireland of five. At present the number of Savings’ Banks in operation in Great Britain, is five hundred and eighty-four. Those doing the largest amount of business are of course in London; and some idea may be formed of the magnitude of their transactions, when it is stated that the St. Martin’s Bank, near Trafalgar Square, alone, has on its books at present, forty thousand depositors, whose investments amount to upwards of a million and a quarter sterling. Since this establishment was first commenced in 1816, it has opened one hundred and seventy-three thousand accounts for nearly eight millions of money. The bank which approaches the nearest to the St. Martin’s Bank in magnitude, is the Bishopsgate Bank in Moorfields. That bank has three-quarters of a million invested in it. The Bloomsbury Bank has half a million: the Marylebone Bank about 300,000l. There are banks as large as the last, at Newcastle, Nottingham, Norwich, Bristol, Hull, Devonport, Leeds, and Birmingham. The Liverpool and Manchester Banks have 268deposits of half a million each. In Exeter there is a bank with thirty-five thousand depositors, and half a million of money.

This immense amount of business is done at no very great cost. For the five hundred and eighty-four banks, there are altogether only eleven hundred and forty paid officers. The salaries of these officers amount to no more than seventy-five thousand pounds a year; and they manage the business of more than a million of depositors, whose accounts exceed twenty-eight millions sterling—a sum equal to the capital of the Bank of England.

The mere fact of any institution having to deal with so enormous a capital, renders it one of great importance commercially. But when it is remembered that the vast aggregate is made up of small savings; and that additions to, or withdrawals from it, furnish a clue to the fluctuations between the prosperity and depression of the largest, most useful, and least wealthy among us—the thews and sinews of the nation—the administration and management of Savings’ Banks cannot be too jealously watched.

Unhappily a painful interest has been lately imparted to the system by the abstraction of large sums by certain local managers; and by the discovery that to make these defalcations good, there exists no government liability. Indeed by law (the act of 1844) even the Trustees are not liable; but honour has always, as we shall see, proved with them stronger than the statute. A clear understanding of the actual connection of the State with Savings’ Banks is of vital importance, not only to depositors, but to those who interest themselves in promoting the banking system among the humbler classes; a system, which, it may be safely affirmed, has hitherto proved of the utmost benefit not only to the worldly prosperity, but to the morals of the working bees of our Great Hive.

Savings’ Banks were first established from motives of benevolence. They soon, however, came to involve such great responsibility that the managers were anxious that the State should give them the benefit of its support. The State was nothing loth, for it saw the advantage of having such large amounts of money in possession. Accordingly, in 1817, there was opened at the National Debt Office, a “Fund for the Banks for Savings,” and an act was passed compelling the Trustees to pay in their deposits to that Fund, receiving a debenture which bore interest at the rate of 4l. 10s. per cent.

The Government, therefore, is only responsible for the money after it is paid to the National Debt Office: it is not accountable for deficiencies arising in the course of Savings’ Bank transactions, or from the embezzlement or mismanagement of local officers. Still depositors are seldom defrauded; for when such defaults have happened, the Trustees and Managers of the Bank concerned have stepped in to cover the deficiencies, except in a case which occurred in Wales in 1824, and in other instances subsequently in Ireland. In no one case, on the other hand, has the Government ever rendered assistance to the value of a farthing. Why, will be seen when the dealings between the local authorities of these banks and the National Debt Office are explained. They are simply as follows:—The accumulated deposits of each Savings’ Bank, are paid over to some neighbouring banker, or other person, who acts gratuitously as treasurer. The treasurer pays the money, by check or otherwise, to the National Debt Commissioners, who invest it in Exchequer Bills or Stock. At the end of the year they allow an interest upon the amount deposited. Out of this interest the Savings’ Banks Trustees are authorised by law to pay interest to the depositors at the rate of not less than 2l. 15s., nor more than 3l. 0s. 10d. per cent. per annum. The Banks vary in the precise rate; the average rate of interest afforded by all the Banks in the United Kingdom is 2l. 17s. 6d. Thus 7s. 6d. per cent.—which constitutes the difference between 2l. 17s. 6d. and the 3l. 5s.—forms the fund out of which is defrayed the charges of management.

In the majority of Banks, there is only one paid officer; but of course the number varies according to the amount of business. The St. Martin’s Bank is the most complete establishment of the kind, and consists of sixteen persons. Some Banks have only one remunerated official. In every case, the National Debt Commissioners have power to make such regulations, under the Savings’ Bank Act, as enforce each paid officer giving heavy security for his honesty.

It is of great consequence that the public should understand that the defalcations which have of late caused some distrust in the stability of Savings’ Banks, have not arisen from any defect of the great principles, but only in the details, and from the abuses of the system. They have happened chiefly in consequence of the culpably loose and irregular conduct of the local managers; but partly from the carelessness or ignorance of depositors. The chief manager of an Institution in default—as in the latest case which has come before the public—has left everything to the actuary or cashier, who did precisely as he pleased, and he is blamable for laxity. On the other hand, most of the monies of which depositors were plundered never passed through a Savings’ Bank at all. They were paid to the Officers of the Banks at their own abodes, and these officers never gave any account of them to the Managers. The only way to stop this, is to make it criminal for any officer of a Bank to receive the money of any depositor, at any other time or place than at the Bank during the regular Bank hours. The fact is that there have rarely, if ever, hitherto been any genuine frauds upon Savings’ Banks. The frauds have taken 269place upon irregular transactions out of doors. Hence it is that the National Debt Commissioners repudiate all liability to the depositors.

Against, however, the National Debt Office itself there is a very serious charge. As we have stated, it is bound to invest, in the public securities, the monies paid over to them by the Trustees and Treasurers of Savings’ Banks. It appears, from parliamentary returns, that at different periods the Commissioners have accumulated large sums of this money, and dealt with it in different classes of securities; although the necessities of Savings’ Banks did not require any such operations. The result has been very unfortunate. The National Debt Commissioners appear, by their accounts, to have less stock by two millions of money, than the capital paid to them ought to represent. This glaring fact appears on the face of the public accounts. No explanation has ever been given; no reasons have ever been assigned. The belief is, that the operations by which the Savings’ Banks fund so seriously suffered, were necessitated by the financial exigencies of government some years since. They commenced in 1834 and continued down to 1843, when they were discovered and checked by public opinion. As, then, for this amount the Government is responsible, the nation will be, ultimately, obliged to pay it up to the depositors.

But a calm review of these facts—startling as some of them are—should not essentially affect the stability of Savings’ Banks, and alarm is comparatively groundless. Firstly, the defalcations of officers are generally made good by their sureties, or by the local trustees; and secondly, the deficiency of two millions is not likely to be called for so suddenly as to inconvenience the public purse.

It is now necessary to point out how—to glance at the opposite page of the account—the law guards against frauds attempted by the public upon Savings’ Banks. The only way in which they could be so abused, would be by attempts, on the part of the comparatively wealthy, to obtain a higher rate of interest, for investments, than they could get elsewhere. But an average interest, 2l. 17s. 6d. per cent. with a maximum of 3l. 0s. 10d., would seem a sufficient bar to such deposits. But in order to guard against such a possibility, the law has enacted that no one person shall be permitted to deposit more than 30l. in any one year, or more than 150l. pounds in the whole; and if his principal and interest together ever amounts to 200l., then the payment of all further interest is stopped. These restrictions are effectual in preserving Savings’ Banks to the sole object of savings—the savings of the poor.

As regards actual frauds and attempts at fraud by the public, we have been obliged with the experience of the St. Martin’s Bank, which very probably speaks for that of all the Savings’ Banks in England:—“Since this Bank was instituted, in 1816,” says our informant, “there have been only five attempts at fraud, by forgery of depositors’ signatures, or otherwise. In two of those five cases the forgery was detected and no loss ensued. In the other three cases the Bank sustained the loss, which amounted in the whole to less than 50l. Attempts at personation seldom succeed,—nor are these always fraudulent; absent depositors are often consenting parties, in order to save themselves the trouble of attending personally. Such cases lead to dispute; but two such cases which have occurred here are rather curious. In 1847 a man married a female depositor, and induced her to withdraw the whole of her money (exceeding 100l), of which having possessed himself, he abandoned her. Subsequently he deposited 90l.., part of this money, in three different Savings’ Banks, our own among the number. The wife having stated her case to us, we took advantage of the law which prohibited him from depositing in more than one Bank, and refused to allow him to withdraw. The case was referred; and the barrister appointed by act of Parliament to settle such questions awarded that, under the statute, the deposits were forfeited to the Commissioners of the National Debt. The Lords of the Treasury, upon the wife’s memorial, ordered the restitution of the money to her, for her own separate use, free from her husband’s control; and this arrangement we had the pleasure of carrying into effect.—The other case was equally singular. In 1848 the Painters’ and Glaziers’ Friendly Society had an account with us. They sought to eject one of the trustees of their fund from the benefits of their Society, on the ground that on the ‘10th of April’ he had acted as a Special Constable, contrary to the rule prohibiting him from ‘voluntarily entering Her Majesty’s service.’ The trustee protested to us, and we objected to pay the Society’s money without his signature to the order. Thereupon ‘the Painters and Glaziers’ caused the case to be referred, and the barrister awarded that the funds should not be transferred or withdrawn without the trustee’s consent.”

From the same quarter we ascertained, in reference to unclaimed money, a remarkable circumstance. The amount of unclaimed deposits in the St. Martin’s Place Bank has of late decreased instead of increased. In 1842 the Bank held 10,800l., which had been unclaimed for seven years. In 1849, although its business had so amazingly augmented, the amount which had remained unclaimed for seven years was 9898l. or nearly 1000l. less. This is accounted for by the great pains taken to trace and summon the depositors and their representatives. It certainly is remarkable that out of transactions to the extent of more than eight and a half millions of money, only 9900l. should remain unclaimed.

From what we have stated on this subject it will be seen that although Savings’ Banks 270are not on a satisfactory footing as between the Government and depositors, or as between the latter and the local managers; yet, on the whole, the system is so well contrived, that no good reason has lately been revealed for the public to withdraw their confidence from them. The cure of the more glaring defects is now under the consideration of Government, and this paper will be best concluded by a sketch of the proposed remedy. The bill introduced by the Chancellor of the Exchequer deals with all the defects we have pointed out: perhaps it introduces some new ones, but these it will be purged of probably in Committee. One of the chief evils is that exemption from liability which was extended to trustees in 1844: and it is proposed, for wilful or neglectful losses, to restore this liability. These officers are now unpaid; and it is proposed to pay them, Government being responsible for their acts, and having the privilege of appointing. To prevent fraud, occasioned by the treasurer or actuary receiving monies at his own house, it is intended that the treasurer alone shall receive money, and that he shall attend at certain stated times for that purpose. A local banker is to fill the office, who will not be wholly unremunerated. For any other person than the treasurer to receive money as a savings’ bank deposit, will be a misdemeanour. Daily accounts are to be rendered to the Commissioners of the National Debt; and those Commissioners will appoint auditors, who shall exercise a constant revision of the accounts, subject to supervision by special inspectors despatched at discretion. These arrangements will necessarily entail greater expence, and to meet it, the rate of interest allowed to depositors, is to be reduced to 2l. 15s., and deposits limited to 100l. Above that amount, Government will either hold the money without interest, or, at the depositor’s option, invest it in the funds free of charge.