In the course of the correspondence which has been running on lower rates, the question of the Birmingham Municipal Bank
was raised and the suggestion made that such a bank would lend to its Corporation more cheaply than any other financial institution.
I have therefore been in touch with Birmingham and obtained the following data which may interest your readers.
The last available
report and accounts covers the year to the 31st March, 1937, and was published in June of last year. I understand the current report
and accounts to the 31st March, 1938 is at present in hand and likely to be issued any day, but I have been informed on enquiry at
the Municipal Bank that the general picture which I propose to put before your readers now has not been materially altered in 1938
At 31st March, 1937, the Birmingham Municipal Bank owed to depositors a few pounds short of £24 million. It had employed this
money as to, £2 million in advances for house purchase, ie building society business; it had as cash-in-hand something just over £1
million and it has cash on deposit with Birmingham Corporation, that is to say, it had lent money to various Corporation departments
in effect, to the extent of nearly £21 million. Of this £21 million a shade over £11 million was invested in British Government Securities
leaving the Birmingham Corporation itself with the employment of something either side of £9 million.
Its income and expenditure account
disclosed it had received in interest £779,000 during the year. Advances in the house purchase department are made at a minimum rate
of 4½ per cent with up to 5 per cent in a few cases; the interest, therefore, charges on these advances would account for about £90,000
which would leave nearly £700,000 in interest received on the loans amounting to £21 million to the Birmingham Corporation. This gives
an interest rate of a shade over 3 per cent.
Your readers will appreciate that these are only round figures as I do not wish to take
up your space be asking you to set out all the odd shillings and pence which come into this calculation, nor such items as £135,000
which has been spent in land and buildings for head offices and on furniture etc.
The main point, however, which emerges clearly from
these figures is that with all the experience behind the Birmingham Municipal Bank and with all the undoubted skill with which it
is operated, Birmingham Corporation is obviously not borrowing money from its own municipal bank at anything under 3 per cent.
of the fact, of course, that over £11 million is invested in British Government and other trustee securities on which it is difficult
to obtain a yield of 3 per cent during the period under review, it is obvious that on the remaining £9,000,000 which have stayed with
various corporation departments, something over 3 per cent is actually being paid.
This bears very favourable comparison with the loan
recently floated on the Stock Exchange by Southgate Borough Council at 3½ per cent; in fact, if it were possible to work the Birmingham
figures with any greater exactitude the difference between the rate of interest paid by the two municipalities would be found to be
more or less negligible.
I don’t know how much comfort the Lower Rates Demand Association will be able to extract from these published
results of the work of the Birmingham Municipal Bank, but it does, at any rate, clearly show that even a municipal bank cannot afford
to lend its own corporation at so much below the current lending rate as the association would have your readers believe.
Vicars Moor Lane