TRUSTEE SAVINGS BANKS BILL. (Hansard, 26 February 1918)

§ Mr. BALDWIN (Joint Financial Secretary to the Treasury)

I beg to move, "That the Bill be now read a second time."

I think I can explain the circumstances of this Bill in a very few words. This is a Bill which docs not deal with the ordinary trustee savings banks, but with what is called the special investment departments of those savings banks. The special investment departments as they at present exist, numbering something like forty—five throughout England and Scotland, were sanctioned by Statute under the Savings Bank Act of 1863, and they were devised to give benefits to those members of savings banks who wished to get a somewhat better return than they could under the savings banks. These branches are quite independent of the savings bank branches. Their position is somewhat peculiar. Though the State exercises a supervisory authority, it has 1341 no liability for their financial condition. The accounts are kept entirely separate from those of the savings banks, and, beyond the supervisory authority which the State exercises in the way of demanding returns to be sent to the National Debt Commissioners and so forth, it has no real liability concerning them, and if, owing to any circumstance, these investment departments become insolvent, no claim lies against the State on behalf of those departments. There is one difficulty that has been evident for some time in the conduct of these institutions. They are in a certain sense banking institutions in that they take money from people, and people have the power of withdrawing their money, and the institution is supposed to be responsible for being able to repay them on very short notice. But the safeguards that exist in the case of banks do not exist in the case of these special investment departments, because the essence of banking is to keep a sufficient amount of your securities liquid so that you may at any time meet calls made upon you. In addition, there is the further safeguard in the uncalled capital of banks which is always much greater in amount than that which has been paid up by the shareholders of the bank. Therefore it follows with institutions of this kind if the management are not extremely careful to avoid that most perilous trap of banking, namely, borrowing their money from the people short and lending their money on long terms, that in times of financial stringency this must happen, that securities will depreciate in price, and that though the institution may be solvent in the long run, yet it may find itself practically insolvent at the moment, because it cannot lay its hands on the funds that it requires in the event of a run being made upon it.

This state of affairs actually threatened soon after the outbreak of war, and, indeed, before the War, in one or two cases, there were investment departments of savings banks that would not have been solvent had there been a run upon them. The Treasury was, therefore, approached by some of these institutions, and a strong Committee was set up. Mr. Montague Norman, recently elected Deputy—Governor of the Bank of England, was chairman of that Committee, and the whole position was very carefully investigated. They made a Report, with recommendations, and their recommendations 1342 are embodied in this Bill, to which I ask the House to give a Second Reading, after consultation with the institutions in question. What we want to secure is that the whole strength of the savings banks shall be brought to bear to secure the solvency of any one of them that may have to be tided over a critical time. To effect this, Clause 1 places the special investment departments under the control of the National Debt Commissioners, whose consent is required as regards investments, changes in the rate of interest allowed to depositors and management expenses, and investments must be repayable within three years. The recommendation of that Committee was, indeed, more stringent. It was that repayment should be effected within one year, but we finally decided to meet the views of some of the committees of those banks which approached us with the representation to extend the term from one year to throe. Clause 2 provides for a guarantee fund against deficiencies, and this guarantee fund we secure by taking power to use reserves of all the trustee savings banks carrying on special investment departments and certain surplus assets of the closed banks now in the hands of the National Debt Commissioners, and it settles how, in a case of deficiency, this fund is to be drawn upon. Clause 3 deals with minor points, one of which will have an interest for the House, because it settles a matter which has long been the subject of dispute. There exists a considerable sum of money, something like £100,000, which represents a surplus fund that arose before the year 1880, and this surplus fund has, up to now, been in the hands of the National Debt Commissioners, who have not been obliged to pay any interest upon it. In Clause 3 we are agreed, as I think is only fair, that for the future this sum shall be chargeable with interest. The effect of the Bill, therefore, will guarantee any deficient bank by the strength of all the trustee savings banks which have special investment departments, and it secures in the management greater caution in the future. We hope that when this Bill becomes law we shall make the position of depositors in the special investment departments absolutely secure, and I feel confident that the House will recognise how desirable it is at the present time to remove what has been proved to be a small weakness in the 1343 general financial stability of the country as a whole. I hope that with these few words of explanation the House will consent to give to this Bill a Second Reading, and I shall be very pleased, when the Bill gets into Committee, to deal, so far as I am able, with any objections on points of detail which may be offered to the scheme.