The Birmingham Municipal Bank
by J P Hilton
An article regarding the then short history of the Bank, written by its
first General Manager. It was published in The Banker magazine in November 1926 and is therefore contemporaneous with his book
Hilton's decision to write this article in 1926 may have been influenced
by the setting up of the Bradbury Committee, to examine the question of Municipal Savings Banks, in that year.
In 1916 the Birmingham Corporation, at the instigation of the then Lord Mayor (Alderman Neville Chamberlain), decided to put before Parliament proposals for the establishment of a municipal bank. The idea arose out of a meeting convened to discuss after-war problems, so far as the city might be affected, one of these problems being how the citizens could be helped to tide over a period of depression which it was thought might occur after the termination of the war. The Lord Mayor felt strongly that if the workers could be induced by some attractive scheme to save a portion of their earnings while wages were good and employment plentiful, it would be a very wise provision to make. The Government were impressed with the idea, and accordingly framed a Bill which was in due course presented to Parliament, only to be "talked out." Despite this rebuff, Birmingham continued to apply pressure on the Government, with the result that the Municipal Savings Banks (War Loan Investment) Act, 1916, was passed, enabling a local authority with a population of not less than 250,000 to set up such a bank. The Act was intituled "to facilitate the investment of savings in securities issued for the purpose of the present war," and provided for receiving deposits at interest from employed persons through the medium of the employer, but restricted its operations to a period of three months after the termination of the war. Birmingham was the only local authority to take advantage of this Act, and set up what was known as the Birmingham Corporation Savings Bank. The method of saving was by coupons of various denominations, purchased by the employer from his own bank and paid to the employees at their request as part wages, or purchased by the employees from the employer. In formulating the scheme, the managers of the two largest banks in Birmingham, viz., Lloyds Bank and the Midland Bank, were consulted, and much valuable advice was given by these gentlemen.
The experiment, in the opinion of the Birmingham Corporation, proved that there was a need in the city for some such organization, and with the signing of the Armistice, the Corporation had to decide whether to allow the bank to be wound-up and repay the deposits, or whether to take steps to secure the continuance of the bank or set up something in its place. There were enrolled at that time over 30,000 depositors, with accumulated deposits totalling £350,000. The Corporation came to the conclusion that it would be a mistake to allow the bank to go out of existence, and accordingly clauses were embodied in a private Bill, which the Corporation were promoting, to establish as a permanency a municipal bank. The proposals met with a favourable reception, and the necessary authority was given by the Birmingham Corporation Act, 1919. The depositors in the temporary bank were allowed the option of either withdrawing their money or transferring it to the new bank; and it was then clearly indicated that the depositors had every confidence in the bank, and that they wished it to continue. Out of the £350,000 accumulated deposits, no less than £325,000 were transferred. At this time the Corporation decided to abandon the practice of saving through the employer by means of coupons, and to allow the citizens to make their deposits in cash in the ordinary way. This decision was a very wise one. The people showed signs of tiring of "licking stamps," as the coupons were commonly referred to; and one can say, with equal truth, that those who had to handle these gummed coupons were not sorry to see the end of them, and an end of their worries in searching for lost coupons - only to find them stuck at the back of a drawer!
The Act of 1919 authorizes the Corporation to maintain a savings bank and to establish a Housing Department for the purpose of making advances upon the security of freehold or leasehold estate, so that the municipal bank may he described as a combination of a savings bank and a building society. It accepts deposits at interest and provides for withdrawals, and advances money to enable depositors to purchase the house they live in or desire to live in, but it does not make advances for the purpose of investments in house property. The Corporation regard it as essential that the widest facilities should be provided for deposits, and equally so, that the fullest opportunities should be afforded for withdrawals, consequently branch banks have been established in different parts of the city. Opinions may differ as to the necessity for municipal banks, but an institution which has a yearly record in transactions of over 1¼ millions, and which maintains thirty-six branches, demonstrates not only the need for such a bank in Birmingham, but proves that the Corporation rightly anticipated the wishes of the people. If the people do not want municipal banks they will not support them.
The success of the Birmingham Municipal Bank can be judged from its figures, and the following information indicates, at least, a remarkable development in the short space of seven years:
Number of open accounts..........……................................................... 208,900
Accumulated balances due to depositors......................................£7,000,000
Number of mortgages granted.................................................................. 5,600
Amount advanced on mortgage...................................................... £1,856,000
Number of mortgages repaid.....................................................................1,170
Amounts repaid by instalments, or on discharge of mortgages......£562,000
For many years the Birmingham Education Committee have conducted a schools savings bank in their elementary schools, and this has been brought into close association with the municipal bank. The Corporation regard it as of importance to secure a continuity of the practice of saving taught in the schools, and that continuity is secured through the municipal bank.
Following upon the practice of savings banks in other parts of the country, the municipal bank introduced the "Home Safe" as a means of encouraging workers and their children to save odd coppers, and as a convenience to people living some distance from a branch of the bank; but unlike most other organizations, the Birmingham Corporation refused to accept a foreign made safe. A local firm was persuaded to put down the necessary plant to manufacture home safes, with the result that those used by this bank are a Birmingham production, and in strength and effectiveness second to none. Since our action, several other savings banks have followed the practice of having a British-made article. Quite recently one of the large joint stock banks have introduced home safes similar to those in use in America, and from the Press reports it might be thought this was a new idea. For a joint stock bank it may be, but it is a very old custom with savings banks. Imitation is the sincerest form of flattery.!
It is not, however, in respect of deposits, withdrawals, and advances purely, that the value of the bank to Birmingham citizens should be assessed. It confers a great public service by placing its counters at the disposal of ratepayers for the payment of rates, water, gas, and electricity accounts. Any ratepayer can walk into a branch of the bank and pay his Corporation demands, such payments being ultimately passed on by the bank to the respective departments. This is a boon to the ratepayer - it saves him expense and inconvenience - while it also enables the departments concerned to effect economics in cost of collection. It may be asked how this can be effected. The answer is that the bank is open on Saturday and Monday evenings - a very necessary requirement if the convenience of the workers is to be considered - and these two days are responsible for 75 per cent. of the transactions of the bank. It, therefore, follows that a staff necessary to meet that demand becomes underemployed during mid-weeks, and can be utilized to the advantage of all concerned in rendering this service to the municipality. Birmingham, in this respect, has taken a step forward towards economic civic administration, a step which all who have to meet the unpleasant demands of a rate collector will appreciate.
Birmingham stands alone in this new civic venture of a municipal bank, although a few so-called municipal banks have been set up in Scotland. As a result of its prominence in this matter, it is becoming a kind of "Mecca." Deputations from other towns, and even foreign and colonial deputations, are frequent, while the post-bag invariably contains an inquiry from another district. It is said that Birmingham is envied in this matter. But why should it stand alone? If the bank is a good thing for the people of Birmingham, it is difficult to see why a similar bank would not be an equally good thing for another town. Certain other local authorities have endeavoured to secure Parliamentary powers similar to those enjoyed by Birmingham, but have been unsuccessful, although no clear statement as to the ground of the refused sanction has been given. The outcome of this continued opposition is engendering a feeling in the country which may do much harm, and it is gradually driving the question of municipal banks into the vortex of politics. This will be, in my judgment, a serious mistake. The question of municipal banks should not be allowed to become a political party question; it is common to the whole community, and should be regarded as such.
It may be urged that joint stock banks exist in abundance to cope with this matter, but can it be said that they have succeeded in attracting workers to any appreciable extent? Anyone with experience of workers' organizations must realize that there is a considerable body opposed to using a joint stock bank as a savings medium, and whether one agrees or disagrees with that opposition, it can be assumed that reasons exist for the views. While I do not suggest that the opposition to municipal banks is being fostered by those interested in joint stock banks, there does appear from time to time ill-informed criticism and misrepresentation. The principal objections appear to be in respect of the rate of interest allowed on deposits, and a fear that money will be used unwisely by the municipality. The rate of interest paid, so far as Birmingham is concerned, is a matter for the Corporation to deal with, and I do not think they are likely to deal with it on other than safe lines. Any fear of bulk withdrawals from joint stock banks is largely discounted by the regulation which limits the amount of deposits to £500 in any one year. The working of a municipal bank must be governed by regulations, and so long as such banks are worked on the lines of the Birmingham bank, and under similar regulations, I do not think there is any cause for fear.
The Right Hon. Neville Chamberlain (now Minister of Health), in opening the new head offices of the bank in July, 1925, expressed the view that by accumulating the savings of the poorer sections of the community it was possible to forge an instrument capable of great things, and that all those who were connected with the finances of a local authority knew that great as were the resources, they were not illimitable; therefore, in his opinion, anything that could harness the multitude to the financial car was going to add very materially to the resources of the town, and in that respect he regarded the municipal bank as a potent means of harnessing the savings of the working classes and utilizing them for the benefit of the community.
Birmingham has always recognized the necessity for having available a sufficient "floating" sum to meet withdrawals, but experience has proved that, with the exception of holiday periods, such as July and Christmas, the amount deposited has exceeded the amount withdrawn. Moneys, over and above the "floating" balance and sums advanced for purchase of houses, are placed with the Corporation at call, in accordance with the regulations, and the Corporation invests at least half of that money in trustee securities which are readily marketable, while the rest is used for the general requirements of the city.
Looked at from an unbiased point of view, municipal banks can be made beneficent institutions. They should be regarded as complementary, and not alternative, to joint stock banks. This view is supported in a recent issue of the "Financial News," which definitely records a firm belief that "there is room for municipal savings banks that will encourage thrift, and will give some help to the Corporation by providing floating capital." One should not lose sight of the fact that by encouraging large numbers of people to build up financial resources of their own, on which they can fall back in times of adversity, and by encouraging individual house ownership, one is contributing to the strength and stability of the nation. In the past there have been, and may still be found, organizations of a doubtful and undesirable character dealing with people's savings. The elimination of such organizations, which often bring hardship and suffering to those vitally concerned, should be welcomed, and in this direction a municipal bank, guaranteed by the local authority to repay deposits in full, can materially help.
By teaching habits of thrift and fostering a spirit of independence, the Birmingham Municipal Bank is doing a great work, and is able to see results from its labours. It is known that depositors have, for the first time in their lives, been able to enjoy a seaside holiday; it is noticed that depositors have changed their place of residence from a district not so desirable to one more pleasantly situated; it is found that homes are better furnished, and people better clothed, as a result of practising the saving habit. The doctrine preached in Birmingham for the last seven years, of saving in order to spend wisely, has not been preached in vain.