fighting countrymen. The effect of this publicity campaign on
Savings Banks was shown by a decrease of about £20,000,000 in
7— (1723)
98
BRITISH FINANCE, 1914-1921
Liabilities of the Government on Savings Bank Account
Total amount at the credit of
Total.
In
D
At
The Fund for
the Banks for
Savings (Trustee
The Post Office
Savings Bank
Fiiiici
crease +
ecrease -
Savings Banks)
j
For 1 month.
1914
£
£
£
£
Jan. 24
53,595,108
188,781,224
242,376,332
+
2,571,904
Feb. 21
53,758,435
189,396,492
243,154,927
+
778,595
Mar. 21
53,904,592
189,935,779
243,840,371
+
685,444
April 18
1 53,939,455
190,652,680
244,592,135
+
751,764
May 16
' 53,799,052
190,748,413
244,547,465
-
44,670
June 13
54,549,025
190,791,971
245,340,996
+
793,531
July 1 1
' 54,482,781
192,044,322
246,527,103
+
1,186,107
Aug. 8
< 52,979,463
191,516,822
244,496,285
-
2,030,818
Sept. 5
52,786,574
188,389,779
241,176,353
-
3,319,932
Oct. 3
52,792,530
188,280,044
241,072,574
-
103,779
Oct. 31
52,935,990
189,671,969
242,607,959
+
1,535,385
Nov. 28
i 53,009,464
190,286,806
243,296,270
+
688,311
Dec. 26
53,344,415
189,387,699
242,732,114
564,156
For 1 year.
Aug. 8, 191.
[ 52,979,463
191,516,822
244,496,285
+
6.141,243
,. 7, 191J
) 50,371,832
181,648,755
232,020,587
-
12,475,698
„ 5, 191(
5 52,232,866
193,953,283
246,186,149
+
14,165,562
„ 4. 191i
' 48,716,324
194,811,264
243,527,588
-
2,658,561
„ 3,191^
I 56,281,545
220,655,438
276,936,983
-f 33,409,395
.. 2, 191^
) 68,422,709
261,420,027
329,842,736
+
52.905,753
July 31, 192
72,198,384
269,814,632
342,013,016
+ 12,170,280
Increase foi
r
6 years
19.218,921
78,297,810
97,516,731
The figures given in the above table do not represent the exact amounts due
to depositors of the two classes of savings banks at the respective dates, but
are the amounts which have been handed over by the Savings Banks for
investment by the National Debt Commissioners, in conformity with the
Savings Banks Acts. The Trustee Savings Banks keep a small cash balance
with local Joint Stock Banks and the Postmaster-General also keeps a small
balance on Savings Bank Account to meet current withdrawals. These cash
balances in both cases are, however, usually less than 1 per cent, of the
liabilities to depositors, so the fluctuations in the figures shown in the table
may, therefore, be taken as representative of the experience of the Savings
Banks since the commencement of the war. The figures for the Trustee
Savings Banks do not in any way include the funds of the Special Investment
Departments of the Trustee Savings Banks, for the funds of such departments
are not handed over to the National Debt Commissioners, but are invested
direct by the Trustees of the banks, subject to certain statutory restrictions,
and largely in temporary Government Loans and in local loans.
the aggregate funds during the four weeks lllh July-7th August,
1915. This decrease represented exactly 8 per cent, of the aggregate
THE BANKING POSITION 99
funds at 10th July. By an interesting coincidence the Trustee
Savings Banks and the Post Office Savings Bank both suffered a
hke proportionate decrease, the figures being about £4,200 000
and £15,900,000 respectively. There is every reason to believe
that the main influence which made Savings Bank depositors
subscribe £20,000,000 to the second War Loan was the widespread
appeals to patriotism, and not the high rate of interest borne by
the loan. The Postmaster-General, in his report for the yearl915,
made the following comment on the effect of the 4| per cent. War
Loan on the deposits of the Post Office Savings Bank : " It is
noteworthy that the diversion of large sums of money into War
Loans and Exchequer Bonds has had little effect upon deposits
in the Post Office Savings Bank. In June and ]u\y, 1915, when
the lists for the 4| per cent, loan remained open, withdrawals
exceeded the normal by £18,000,000 ; and in January and February,
1916, when the 5 per cent. Exchequer Bonds were launched, there
was some further diversion, but only of comparatively small
amounts."
Notwithstanding the outbreak of war and withdrawals for
investment in the first two War Loans, Savings Bank funds only
decreased by about £12,500,000 during the first year of the war.
The following year this decrease was more than made up by an
increase of about £14,200,000 for the year.
A further drain on Savings Bank deposits was experienced during
the issue of the third War Loan, the prospectus of which appeared
on 12th January, 1917. This loan was divided into two parts :
a 5 per cent, loan issued at £95 per cent., and a 4 per cent, loan
issued at par, with Income Tax compounded. The lists for appli-
cations closed on 16th February, 1917. When giving detailed
particulars of the stupendous success attending the third War
Loan to the House of Commons on 26th February, 1917, the
Chancellor of the Exchequer stated that, during the War Loan
campaign, special care had been taken not to encourage with-
drawals from the Savings Banks, with the result that these with-
drawals, in spite of the immense sum raised by the loan, were
£6,000,000 less than in the 1915 loan. Notwithstanding with-
drawals for investment in the third War Loan, Savings Bank
funds only decreased about £2,600,000 during the third year of
the war.
100 BRITISH FINANCE, 1914-1921
During tlie year ending 3rd August, 1918, there was a substantial
increase of about £33,400,000 in Savings Bank funds, which was
followed by a still greater increase of about £52,900,000 for the next
year, and an increase of about £12,200,000 for the year ending
31st July, 1920. The fourth War Loan (the Victory Loan), which
was issued during 13th June-12th July, 1919, had no material
influence on Savings Bank deposits. The total increase for the
six years ending 31st July, 1920, was about £97,500,000, or an
average annual increase of about £16,200,000. For the ten pre-war
years 1904-1913, the increase in Savings Bank deposits was about
£43,000,000, or an average annual increase of £4,300,000. The
great increase experienced during the three years ending 31st
July, 1920, was due to two causes, partly to the great increase in
wages that took place during this period leaving the working
classes with a greater margin for saving purposes, but mainly to
the removal, as from 31st December, 1915, of the statutory restric-
tions on the amount of deposit by any one depositor. At the
outbreak of war there were restrictions in operation on the amount
of money that might be deposited by any one depositor in the
Post Office Savings Bank or a Trustee Savings Bank (Ordinary
Department), the limits of deposit being £50 annual and £200
total. The War Loan (Supplemental Provisions) Act, 1915 (5 and
6, Geo. 5, c. 93), provided, among other provisions, for the removal
or alteration temporarily by an Order promulgated by the Treasury
of the limits of deposit in Savings Banks for a period not longer
than that of the duration of the war and six months thereafter.
In conformity with this provision, the Treasury made an Order,
dated 31st December, 1915, removing for the period of the war
and six months thereafter the existing restrictions on the amounts
which might be deposited by any one depositor in the Post Office
and Trustee Savings Banks. On 20th May, 1920, a Savings Bank
Act (10 and 11, Geo. 5, c. 12) was passed which provided that
there shall be no limit on the amount which may be received by a
Savings Bank authority from any person by way of deposit, but
made it lawful for the Treasury at any time to limit the amount
which may be received from any person whatsoever, either in any
one year or in the aggregate. So far, no restrictive order has been
made by the Treasury.
The great increase in the amount of Savings Bank deposits
THE BANKING POSITION 101
during the years 1918 and 1919, notwithstanding the high rates of
interest borne by the various War Loans and other forms of Govern-
ment borrowing, proves beyond all doubt — what has often been
contended by those experienced in Savings Bank matters — that
depositors attach more importance to security and the facilities
afforded for deposit and withdrawal (including the issue of a suitable
pass-book) than to the rate of interest. Throughout the war, and
since, the Savings Bank rate of interest has remained at the old
and low rate of 2| per cent, per annum. On grounds of equity
to depositors, the rate might have been temporarily raised to, say,
3 per cent., in view of the much higher rates derived by investment
in War Loans, Exchequer Bonds, National War Bonds, War Savings
Certificates, and other forms of Government borrowing, and the
publicly expressed desire of the Government that no excessive
transfers thereto should be made from Savings Bank deposits.
(d) The Amalgamation Movement
During the twenty years, immediately prior to the war, about
120 separate banks were absorbed by the process of amalgamation.
After the outbreak of war, for a period of over three years, there
came a lull in the amalgamation movement, the larger banks,
evidently in view of the uncertainty of the financial situation,
deeming the better policy to husband their own resources for all
eventualities.
In 1918, however, there came quite an epidemic of amalgamations,
some of which were of a new type. Prior to the war, amalgamations
took the form of absorption of more or less local banks by a larger
and more widely-spread Joint Stock Bank. At the end of 1917,
a new type appeared — ^the union of one large Joint Stock Bank
with another similar bank. In December of that year the amal-
gamation of the London & South Western Bank (Deposits at
31st December, 1917, ;f38,664,000) with the London & Provincial
Bank (Deposits at 31st December, 1917, £35,962,000) was announced,
and also the amalgamation of the Union of London & Smiths
Bank (Deposits at 31st December, 1917, £62,818.000) with the
National Provincial Bank of England (Deposits at 31st December,
1917, £112,597,000). In February, 1918, two large amalgamations
were announced ; Parr's Bank (Deposits at 31st December, 1917,
£68,631,000) with the London County & Westminster Bank
102 BRITISH FINANCE, I9l4-l921
(Deposits at 31st December, 1917, £142,268,000) was announced
on the 1st of the month, and the London Joint Stock Bank
(Deposits at 31st December, 1917, ;^57,979,000) with the London
City & Midland Bank (Deposits at 31st December, 1917, £220,552,000)
on the 18th of the month. (This latter proposed amalgamation
was refused Treasury sanction until July, because it followed the
announcement of the Chancellor of the Exchequer on Stli February
that he proposed to appoint a Committee to consider the whole
question of Bank Amalgamations.) During July, 1918, two further
important amalgamations were announced — the London Provincial
& South Western Bank^ (Deposits at 31st December, 1917,
£74,626,000) with Barclays Bank (Deposits at 31st December, 1917,
£129,068,000), and the Capital and Counties Bank (Deposits at
31st December, 1917, £58,646,000) with Lloyds Bank (Deposits at
31st December, 1917, £174,068,000).
The amalgamation movement of large banks that commenced
in December, 1917, arousing fears in the commercial world of the
establishment of a money trust, the Chancellor of the Exchequer,
to allay these fears, announced in the House of Commons on
Tuesday, 5th March, 1918, that a Committee had been appointed
" to consider and report to what extent, if at all, amalgamations
between banks may affect prejudicially the interests of the industrial
and mercantile community, and whether it is desirable that legisla-
tion should be introduced to prohibit such amalgamations or to
provide safeguards under which they might continue to be per-
mitted." The Committee was composed chiefly of bankers, with,
however, a sufificiently strong infusion of ordinary business repre-
sentatives. All proposed amalgamations were held up whilst the
Committee was sitting.
On Tuesday, 21st May, 1918, the Committee presented its
Report. Below are given some of the statements of and conclusions
come to by the Committee —
Bank absorptions and amalgamations are, of course, no new phenomenon
in this country. About 300 instances have occurred in the past, more than
half of which have taken place in the last 50 years. In one or two cases
arrangements made provisionally for amalgamations have been defeated
by the opposition of local customers of the bank which it was proposed to
absorb ; but, on the whole, banking policy has gradually but steadily
pursued the path of consolidation and absorption, and, until recently, the
» The London & Provincial and the London & South Western Banks
had amalgamated only in the previous December — see above.
THE BANKING POSITION 103
amalgamations effected have, generally speaking, been carried through
without stirring up serious opposition or arousing public interest. As a
result, the number of private banks has fallen from 37 to 6 since 1891, and
the number of English Joint Stock Banks from 106 to 34 during the same
period.
Several recent amalgamations, however, have undoubtedly provoked an
unusual amount of interest, and have been seriously criticised in certain
quarters. This change in public opinion appears to be due mainly to the
fact that amalgamations have changed their type and consist no longer in
the absorption of a local bank by a larger and more widely spread Joint Stock
Bank, but in the union of two Joint Stock Banks, both already possessing
large funds and branches spread over a wide area. These two types of
amalgamation differ very materially from one another, and arguments used
to justify the former type do not necessarily apply to the latter.
The Old Type of Amalgamation — Absorption of Local Banks
BY a Larger and More Widely-spread Joint Stock Bank
As modern amalgamations are mainly of the new type, it is unnecessary
for us to elaborate the various arguments used in connection with amalgama-
tions of the older type. Very briefly, what the arguments amount to is that
both the local (or more or less local) bank and the larger widely-spread bank
secure to their customers certain advantages of a different kind, but that,
like other institutions, each has also the defects of its qualities. Some
districts — notably Lancashire and Yorkshire — have clung to their local
banks. But in most instances, amalgamation schemes have been carried
out without serious difficulty, and if material hardship had resulted to the
trade generally in the districts affected, there would no doubt have been
greater local opposition to subsequent absorption schemes, and new local
banks would even have been opened.
The New Type of Amalgamation — Union of One Large
Joint Stock Bank with Another Similar Bank
As regards the new type of amalgamation, the main arguments laid before
us in support of the policy of amalgamation are as follows — â–
(a) The convenience and gain to Trade secured by an extension of Bank
areas. — Just as the large banks of the past secured certain advantages to
trade by collecting deposits from parts of the country where they were not
required, and placing them at the disposal of other parts which stood in need
of advances, so it is claimed that this process can be carried still further with
advantage by amalgamating large banks with one another.
This is no doubt true, though, of course, the degree to which an extension
of area is in fact secured by amalgamating banks differs considerably in
each case.
There must come a point when the policy of substituting one large bank
for two will usually mean a very small extension of area, if any, and some
reduction of competition. That point has already been reached in London,
and is being approached in a few of the largest towns where most of the
important competing banks are already established.
It should be added that if both the amalgamating units have, before
amalgamation, lent up to their full resources, home trade as a whole cannot
gain any increase in accommodation as a result of the amalgamation. Except
at the expense of smaller traders, large trade combines could not obtain larger
advances in all from the combined resources of the amalgamation than
they obtained from the separate banks before.
(b) The argument from size. — Numerous representations have reached us
to the effect that large banks are better for traders, and particularly for large
traders, than small banks, because, with their larger resources, they can safely
104 BRITISH FINANCE, 1914-1921
make individual advances on a more generous scale. And it is argued that
banks must grow now to keep pace with the growth in size of business houses
generally, and to enable them to deal wth the demands of after-the-war
trade both at home and abroad.
This is an important point. Various Government Committees have drawn
special attention to the question of banking faciUties after the war, and it is
very desirable that all possible steps should be taken to adapt the banking
interest to the new position which will then arise. The point, however,
with regard to the size of banks is one of degree only, and it is a question
whether the continued practice on the part of exceptionally large firms of
resorting to two or more banks, instead of one, for advances would not
suffice to meet all their needs, and whether the existing large banks are not,
in fact, large enough to meet the requirements of the immediate future, at
any rate if supplemented, as far as may be necessary, by combinations for
special purposes on the lines of German " Konsortiums " or otherwise. We
have received no conclusive evidence on this point.
The above argument with regard to post-war trade can, of course, only be
used with some caution as regards foreign trade, in view of the special
dependence of English banks on deposits withdrawable at call or on short
notice. This is especially the case as regards long-term advances for such
trade, to which special reference is sometimes made.
We have endeavoured to review impartially the arguments which have
been put forward as justifying the necessity in the public interest — quite
apart from questions of profit to shareholders — of bringing about the new
type of bank amalgamation. There is undoubtedly much weight in these
arguments as far as they go. And even if the absolute necessity of large new
amalgamations is not clearly proved, 5'et the absence of proof of the public
necessity for business re-organizations is not, in itself, any reason for objecting
to them, and it is a serious step at any time to interfere with the natural
developments of trade. Before, therefore, considering any restrictive pro-
posals, we endeavoured to ascertain what is the real basis of the fears — often
vaguely felt, and vaguely expressed — which have undoubtedly been aroused
by recent amalgamation schemes. The main grounds for objecting to
further amalgamations appear to be as follows —
(a) Writing down of Bank Capital. — The proportion of capital to deposits
is now so small in the case of English Joint Stock Banks, even excluding the
temporary war increase in the amount of deposits, that any further shrinkage
of bank capital is clearly undesirable, in the interest of depositors, if it can
be avoided. Attention has been drawn to the fact that amalgamation
schemes usually mean a reduction in the total paid-up capital and uncalled
liability of the two pre-amalgamation units. This has frequently been the
case in the past, and it has also been a feature of recent amalgamations and
proposed amalgamations.
(b) Dangers 0/ reduced Competition. — Although, in the past, we believe that
amalgamations have not, in most instances, led to a reduction of bank com-
petition, yet, as we have pointed out above, in London (and possibly before
long in certain large towns) amalgamations between two large Joint Stock
Banks must now usually mean a net reduction in the number of competing
banks. It is true that this reduction is only slight in each case, and that
there still remain at present a fair number of competing banks. But we have
received representations from certain municipal corporations to the effect
that banks vary very much in their willingness to allow reasonable overdraft
facilities to corporations, and that sufficient money, and cheap enough money,
has only been obtained hitherto by resorting to different banks, the number of
which is now falling steadily. On this ground a number of resolutions have
been forwarded to us by corporations protesting against further amalgama-
tions, and suggesting that it is not in the national interest that large funds
belonging to the public should be in the hands of a few companies.
THE BANKING POSITION 105
Strong representations have, on similar grounds, been made to us on behalf
of the Stock Exchange and the Money Market. It is claimed that the world-
wide fame of the London Market before the war was due to the freedom \vith
which London bills could be negotiated, owing to the ease wth which Discount
Houses obtained ample funds from a wide number of banks, and that the
fewer the lending constituents in the Discount Market, the less flexible is
the market and the less fine the rates. It is added that the number of
members in the Clearing House is already becoming very small, and that any
further decrease in the number of its constituent members, or any greatly
preponderant power on the part of particular members, might impair con-
fidence in its smooth working and raise apprehensions in the market. More-
over, it is pointed out that a reduction in the number of important banks
must mean, and has already meant, a reduction in the number of first-class
acceptors of bills, and that if this reduction proceeded very far, it would become
a question whether the Bank of England would not have to place a limit on
the amount of acceptances which they would take from any particular bank
doing a large accepting business, and whether Continental buyers would not
limit the number of bills taken by them.
(c) The Danger of Monopoly. — It has been represented to us that there is
a real danger lest one bank, by the gradual extension of its connections, may
obtain such a position that it can attract an altogether preponderant amount
of banking business ; or, alternatively, lest two banks may approach such a
position independently, and then achieve it by amalgamation.
Any approach to a banking combine or Money Trust, by this or any other
means, would undoubtedly cause great apprehension to all classes of the
community and give rise to a demand for nationalizing the banking trade.
Such a combine would mean that the financial safety of the country, and
the interest of individual depositors and traders, would be placed in the
hands of a few individuals, who would naturally operate mainly in the interests
of the shareholders. Moreover, the position of the Bank of England — which
would, it may be assumed, stand outside any such Trust — would be seriously
undermined by so overwhelming a combination, and the Bank might find it
extremely difficult to carry out its very important duties as supporter and
regulator of the Money Market. Any such result would, in our opinion,
be a grave menace to the public interest.
Further, it has been represented to us that the Government of the day
might not find it easy to adopt a course of which the combine, for its own
reasons, disapproved.
While we believe that there is at present no idea of a Money Trust, it
appears to us not altogether impossible that circumstances might produce
something approaching to it at a comparatively early date. Experience
shows that, in order to preserve an approximate equality of resources and of
competitive power, the larger English banks consider it necessary to meet
each important amalgamation, sooner or later, by another. If, therefore,
the argument from size, referred to above, is to prevail, it can only lead,
and fairly rapidly, to the creation of a very few preponderant combinations ;
and if those combinations amalgamated, or entered into a joint agreement
as to rates and policy, etc., the Money Trust would immediately spring