TRUSTEE SAVINGS BANKS BILL. (Hansard, 9 April 1918)

§ LORD HYLTON
My Lords, this Bill, to which I ask you to give a Second Reading, is one to amend the Trustee Savings Banks Acts, 1863 to 1904, with respect to special investments. This Bill has passed through all its stages in another place without any opposition and after very little discussion. It is in reality a simple measure. Your Lordships will notice in the first place that it does not deal in any way with the Post Office Savings Bank, nor does it deal with the ordinary, or what is called in the language of Acts of Parliament the general business of the 174 trustee savings banks which are at present operating in England and Scotland. The Bill deals only with the special investments department of a certain number of these savings banks.
I should like to call your Lordships' attention for one moment to the two different kinds of business which are now carried on by trustee savings banks. In the first place there is the ordinary business, which as I say is called in Acts of Parliament general business, which consists in receiving money from depositors and investing it through the National Debt Commissioners in the limited class of securities authorised by Section 19 of the Trustee Savings Banks Act, 1863. In the second place there is the special investments business, which consists in investments by the bank itself—that is, not through the National Debt Commissioners—of sums received from depositors, these sums being 639 allowed to he invested not only in the limited class of investments allowed in the case of ordinary deposits but in any security authorised for the investment of trust funds, except the mortgage of land, but not excluding securities under the Local Loans Act and loans on the security of local rates. At the present time there are about forty-five trustee savings banks carrying on in England and Scotland this business of the second class to which I have alluded,
Soon after the outbreak of war it became clear that there was a certain number of trustee savings banks carrying on this special kind of business which would not have been solvent had there been a run upon them. The fact is they were liable to pay out those depositors when called upon, whereas the investments were locked up in securities which were rather long-dated. His Majesty's Government thought that this was far from being a satisfactory state of things, and. the Treasury was approached and a strong Committee set up. I think that in the first instance the Treasury was approached by some of the banks concerned. The chairman of the Committee was a very well-known gentleman, Mr. M. Norman, who may be known to many of your Lordships. He has recently been elected a Deputy Governor of the Bank of England. The whole position with regard to the solvency of this branch of the banks' business was investigated, and the Committee made a Report. The Bill which is now in your Lordships' hands contains most if not all of the recommendations made in that Report. This Bill is in fact a mutual insurance scheme, and its object is to secure that the whole strength of the savings banks should be brought to bear to preserve the solvency of any one of them that may have to be tided over a crisis. The banks that are affected by this measure have been consulted, and I think I am correct in describing the Bill as an agreed measure so far as the banks are concerned.
I will say one or two words about the clauses. As I say, the object of the Bill is to secure that the whole strength of the savings banks should be brought to bear to preserve the solvency of any one of them, and to affect this Clause 1 of the Bill places the special investments department under the control of the National Debt Commissioners, whose consent is required as regards investments, changes of the rate of 640 interest allowed to depositors, and management expenses, and the investments are not to be repayable within three years. Clause 2 provides for a guarantee fund against deficiencies, and this guarantee fund is secured by taking power to use the reserve of all the trustee savings banks carrying on a special investments department and certain surplus assets of the banks in the hands of the National Debt Commissioners, and states how in case of deficiency this fund is to be drawn upon. Clause 3 deals with some minor points. Your Lordships will observe that one of them refers to a considerable sum of money, amounting to something like £100,000, which represents a surplus fund that arose before 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 interest. In Clause 3 it is provided that in future this sum shall be chargeable with interest. When this Bill becomes law we hope that the position of all depositors in this special investment department will be made absolutely secure. I am afraid that it is undeniable that at the outbreak of war, owing to causes with which your Lordships are probably familiar, the position of some of these depositors was at all events temporarily not quite so secure as was desirable, but it is hoped that this measure will alter that unfortunate position of affairs. I hope that the House will consent to give the Bill a Second Reading.

LORD BALFOUR OF BURLEIGH
My Lords, I will not detain the House more than a moment, but I want to ask the noble Lord a question regarding the terms of paragraph (d) of subsection (2) of Clause 1 of the Bill. It seems to me a most extraordinary provision, because it says— No money received for investment shall be invested except so as to become repayable not later than the expiration of one year, or, if the money is invested in Government securities, three years … I want to know what is the precise effect of that. Is it the case that this paragraph will prevent the banks from investing in National War Bonds and other Government securities? These bonds are in most cases not repayable in less than five years. It does seem a most extraordinary provision that at this stage you should prevent 641 trustee savings banks from investing in National War Bonds. It surely is obvious that if the banks are prevented from doing it, it must tend to prevent people depositing money with thorn, because the individual cannot get that rate of interest from the bank which he can get in perfect safety by investing in War Bonds. I quite agree with the noble Lord in his reference to the action of the Government in 1914 when war broke out. Undoubtedly the financial values of investments underwent a very considerable change, and when I he Government issued loans, first at 4½ per cent. and then at 5 per cent. and 6 per cent., the effect of these issues was adverse to special investments made before, especially to such classes of trustee investments as the savings banks were obliged to make, awl I think it is greatly to the credit of the Government that they came to the rescue in the way they did. I understand that a regular Committee was appointed, and they found that most of the banks, if there had been a run upon them, would have been unable to meet their liabilities. But assistance was forthcoming, and, speaking generally, the trustee savings banks were placed in a sound position. This Bill is perhaps necessary to place them on a safe and proper footing. During the past year or two a large sum has been lent temporarily by the National Debt Commissioners to the banks whose needs were most urgent, and I should like to know whether it is the intention of the Government that this Bill should prevent trustee savings banks, now and for all time, from investing in National War Loans.

§ LORD HYLTON
The view of the Government is that people who deposit in these banks must be able to feel, when they come down to the bank and want their money out at once, that the bank will be able to pay. With that object in view the Government do not intend to allow investments to be made in any long-dated security, in any security longer than six months. I think those are the words in the Bill. Therefore I believe I am right in saying, though I should like to investigate the point further, that the banks who deal with this class of business would not be allowed to invest in Government loans which are standing out for more than six months.