APK22T913 Report of Committee Appointed by the Speakers' Club to Inquire Into Bills Recently Introduced in the Legislature Tending to Affect Savings Banks, Submitted to and Unanimously Adopted, After Extended Debate, at the Din- ner of the Club Held March 24th, 1913. Communications relative to the subject matter of this report are requested to be sent to.... RICHARD J. DONOVAN, Chairman, or CLARENCE C. FERRIS, Secretary, 170 Broadway, New York City, 35 Wall St., New York City. THE SPEAKERS' CLUB CHAS. P. ROBINSON, President, 2 Rector Street, New York City. WM. H. SILK, Secretary, 240 West 23rd Street, New York City. S. de BARRENECHEA, Treasurer, 342 West 71st Street, New York City. New York, March 22, 1913. To the Dinner Association of the Speakers' Club: Your Committee on Savings Banks Legislation begs leave to report as follows : In pursuance of the resolution adopted at the meeting of the Association held on Monday, Feb- ruary 24, 1913, this Committee was duly appointed and met on the following day at 10 o'clock in the morning, at the rooms of the New York County Lawyers' Association, 165 Broadway, and organ- ized with Mir. Richard J. Donovan as Chairman, and immediately proceeded to a consideration of the pending legislation in New York State affecting savings banks. The Bills in question are now known as Print- ing No. 320, Introductory No. 313, introduced by Senator Pollock, providing for the compulsory creation of a reserve fund; the bill now known as Printing No. 321, Introductory No. 314, intro- duced by the same Senator, providing for the es- tablishment of branch offices by existing savings banks; and the bill now known as Printing No. 319, Introductory No. 312, introduced by the same Senator, providing for the merger of savings banks. Your Committee has carefully considered the ex- isting savings bank law, which is a part of the Banking Law, Chapter 2 of the Consolidated Laws, Article 4. This savings bank law has in all essential par- 2 ticulars now been in force in this State for about three-quarters of a centuiy. It provides that any thirteen or more persons of good character, who are not bankrupts or judgment-debtors, may or- ganize a savings bank by executing a certificate in duplicate, one duplicate to be filed in the office of the Clerk of the County, and the other in the office of the Superintendent of Banks, setting forth the name under which the bank is to do business, and where it is to be located, and after giving notice by advertisement of where the bank is to be located, the incorporators may apply to the Superintendent of Banks for his certificate, which after examination by the Superintendent as to the necessity and convenience of the proposed in- stitution in the locality which it is designed to serve, and as to the character and fitness of the incorporators to act as trustees, will generally be issued, and immediately upon the issuing of the certificate the trustees may begin business by receiving deposits. The fundamental distinction between a savings bank and all other kinds of banks is that no capital stock or fund of any kind, or deposit or security is required as a condition of doing busi- ness. The sole business of a savings bank is to receive deposits, invest them, and to pay over all the profits to the depositors. No salary or other com- pensation can be paid to the trustees, and the only payments which can be made are to the of- ficers and clerks who are actually engaged in the daily work of the bank. A savings bank cannot do any general "banking business" whatever — ^it cannot discount notes or cash checks or loan on collateral. The trustees 3 of a savings bank are required immediately to invest all moneys received by them in mortgages (m unincumbered real estate, in no case exceed- ing sixty per cent, of the fair and reasonable value of such real estate, and to the extent of sixty-five per cent, of all the deposits. The re- maining thirty-five per cent, of the deposits must be invested in what is known as "quick assets" — national, state and municipal bonds and certain ap- proved railroad bonds, and under no circumstances can more than twenty-five per cent, of the quick assets be railroad bonds. As it is the business of the trustees to pay over all the profits, it has not been the policy of the savings bank law to require the accumula- tion of any surplus or reserve. The policy of the law has been rather to the contrary in forbidding the accumulation of reserves. Savings banks are, however, at the present time permitted to accumu- late a surplus up to fifteen per cent of their assets, and not exceeding ten per cent, in cash may also be carried in vaults or in other banks and trust companies under certain regulations. The Pollock bill proposes a radical change in the fundamental savings bank law. The change is to compel the compulsory creation of a reserve. This will remove the fundamental distinction between savings banks and commercial banks. Savings banks will thus be required to maintain a reserve similar to the reserves required for com- mercial banks and trust companies. The scheme which your Committee believes to be embodied in and to be given effect by the enactment of these bills will be referred to later. The bill known as Printing No. 320, Intro- ductory No. 313, introduced in the Senate by Mr. 4 Pollock January 21, 1913, proposes to amend Section 153 of the Banking Law in such manner as to compel the accumulation of a surplus for the alleged security of the depositors by requir- ing, before the declaration of any dividends, that such a large portion of the net earnings shall be carried to a reserve fund as will prevent all but a few of the savings banks in the State from paying more than three and one-half per cent, per annum, and will prevent many of them from paying even as much as three per cent, per annum. Now, the proposition to gather a reserve fund for the security of depositors naturally appeals to people as being very proper legislation. "You cannot be too careful with poor people's money." "It is of the utmost importance," people will generally say, "to see to it that the full amount of a poor person's earnings, when placed in a savings bank, be returned to him, and whether he receives any interest or not is a minor con- sideration." These and similar expressions readily come from the lips of the man in the street as soon as the proposition is mentioned to him. But your Committee believes that the true interests of the savings depositor will not be safeguarded by the proposed legislation, and that this prima facie view of the matter is fallacious. It is worth while observing that the bill for the compulsory creation of a surplus, and the bills for the es- tablishment of branch offices, and for the merger of savings banks were all introduced on the same day by the same Senator. It is admitted that the reserve fund bill will almost universally reduce the rates of interest now paid by savings banks, and it is a corollary 5 of this proposition that the moneys will be driven out of the smaller savings banks (where under the present law the deposits are equally secure with the deposits in the large savings banks), and will either be transferred to the savings banks which are in a position to pay the highest rate of interest because of enormous reserves already accumulated and not distributed to the depositors in accordance with the policy of the existing law, or the withdrawals will be placed by the ignorant and inexperienced depositor in "sand lots," real estate participating investments, and other quack securities which are popularly advertised, and also to a large extent in the most risky and dubi- ous of Wall Street wildcat securities. That the depositors in savings banks do care for the rate of interest which they receive is illustrated by the experience of the Bowery Savings Bank, which in July, 1909, reduced its rate from four to three and one-half per cent, and lost upwards of seventeen and one-half millions of dollars of de- posits between July, 1909, and January, 1913, while the Emigrant Industrial Savings Bank, which maintained the four per cent, rate, gained upwards of twenty-five millions of dollars of de- posits in the same time, and thus the Bowery has lost its primacy as the bank having the largest amount of deposits, and the Emigrant has taken the lead. The branch bank bill allows only such sav- ings banks as have many millions of deposits, and thus outclass the great majority of the savings banks of the State, to open branch offices. The merger bill will enable the large banks in numerous cases, and especially after the estab- lialiment of branch bnnks, to form combinations 6 which will monopolize the savings bank business in the locality where the merger is made. The branch bank bill significantly mentions banks formed by merger in the scheme which it sets forth. At the present time the small banks are exactly as safe as the large banks. Except for defalca- tions, no savings bank in the State of New York has failed to return to its depositors every dollar of principal, and there is no reason to believe that any savings bank in the State now doing business will have any difficulty in repaying every dollar of principal and also some interest. The plea for reserve is made upon the ground that the bonds in which savings banks have in- vested have to some extent depreciated in market value. This, however, is not material to the ques- tion involved, because all savings banks in the State can easily raise sufficient money to meet any demand for repayment of deposits which is likely to be made. The late Mr. Charles E. Sprague, President of the Union Dime Savings Bank, and an expert on savings bank policy and operation, is authority for the statement, that no savings bank in the State of New York has ever, as the result of a run, been forced to sell more than ten per cent, of its securities. All that the depositors are entitled to receive is all the money which the bank has, because the bank is a mere investment agency. There is no reason why the dividends on the moneys of depositors now in the bank should be accumulated into a res(?rve to distribute to other depositors years later, whose money has not produced the accumulation. The investment values of the bonds which sav- ings banks have, that is, the values which thoy have looking to the time of their maturity, when the principal of each will undoubtedly be paid, dollar for dollar, are the correct basis on which to consider the security of savings banks' de- posits. To require savings banks to maintain a reserve based upon market value of their bonds, is to require them to withhold from their present depositors the gains which their present deposi- tors are entitled to receive, and to reserve those gains to become a "melon cutting" for future de- positors, whose moneys will have contributed lit- tle, if anything, to help grow the "melon." At the present time all deposits in savings banks are exempt from taxes except the surplus, which is taxed at one per cent, per annum. Thus it appears that this tax on the surplus comes out of the depositors and tends to still further reduce the dividends to depositors. Moreover, the surplus never can be repaid to the depositors except as a result of the liquidation of the bank. Your Committee has come to the conclusion that there is no good reason for changing the policy under which the savings banks in this State have for so many years been such a safe and success- ful agency for the investment of the funds of the poor and ignorant, and of small capitalists who lack the knowledge and courage to make their own investments. It is an undisputed fact that for more than a half a century no savings bank in the State of New York has failed to repay to the depositors dollar for dollar of the capital deposited, except in the case of two small banks where defalca- tions have occurred, (the Washington and the State Savings Banks), and there is no sense in accumulating a surplus for the purpose of pre- venting defalcations. Such surplus would rather encourage defalcations. Moreover, defalcations can be adequately provided against under the ex- isting law by requiring all officers and employees to give security. These Pollock bills propose that savings banks instead of being mere agencies for investment of the savings of the people, as heretofore, shall now be made financial institutions having a power in their surplus, otherwise called reserve, which can be swung by the persons in control in aid of financial schemes, as are the funds in other banks. There are at present about two billions of dol- lars in the one hundred and fifty-one savings banks of New York State. A requirement of fifteen per cent, surplus would mean three hun- dred millions of dollars that could and would find its way into Wall Street through loans and deposits in business banks and trust companies and be used in stock speculation, gambling and high finance. Your Committee through its several members has made inquiries of bankers generally during the time which has elapsed since the formation of the Committee, and without disclosing the ob- ject of the inquiries, and has found it to be the opinion of bankers generally that there is behind these bills a scheme to force the deposits out of savings banks and into the purchase of Wall Street securities; that the great bulk of the hard cash which is so necessary to activity in Wall Street is really not in the hands of those who are commonly reputed to be the moneyed class, whose wealth is really largely on paper, but is in the hands of the great body of the people and deposited in the savings banks; and that the 9 manipulators and promoters of Wall Street schemes have been greatly embarrassed in obtain- ing ready money for their exploitations since re- strictions were put upon the investment of life insurance companies' funds as a result of the disclosures made in the so-called Hughes investiga- tion. It is not the opinion of your Committee that the savings bank trustees generally who have taken the ■prima fade view of this matter and favor compulsory reserves, are in any scheme to force the depositors' moneys out of savings banks and into Wall Street, but that they have been caught by the specious arguments of a few savings bank trustees who are well known as runners for Wall Street houses. The Committee believes that in the inquiries which it has made upon this subject it has sensed the true situation much better than the great majority of savings bank otHcers and trustees who are devoted to the details of the management of their funds, and have failed to get any broad view of the matter; and your Committee has come to these Conclusions : (1) If these bills should become laws the rate of interest or dividend would be so reduced as immediately to drive a very large amount of the moneys now deposited in savings banks out of savings banks and into the poorest sort of quack investments, and into all the dangers and vicissi- tudes of Wall Street speculation. (2) That no new savings banks can be started. (3) That the large savings banks will imme- diately force the small savings banks to merge 10 with them, or else will put them out of business by establishing branches in their localities. (4) That the concentration and control which are sought by these bills, engineered by schemers behind the large savings banks, will in a very short time, and probably within a period of three years, become complete, and result in the ab- sorption of all savings bank business by a few of the larger institutions, and the great popular funds now deposited in savings banks will fall into the absolute control of the so-called "Money Trust" or "Money Power." It would mean con- centration and control. (Especial attention is called to the interlocking directorates now existing among the Trustees of the large savings banks in the City of New York and the Directors of other large and power- ful financial institutions in that city.) (5) That such concentration and control will in no way be for the benefit of the depositors in savings banks, and that the huge resei-ves which will be accumulated will become a source of de- moralization to the trustees and officers of such banks, will encourage extravagance, waste, defal- cation and dangerous investments, and will sub- vert the entire policy and system of savings banks funds and management, which have hereto- fore been so successful. (6) That the bills are pernicious, and should be defeated. EICHARD J. DONOVAN, CLARENCE C. FERRIS, M. FREDERIC McALPIN, RICHARD CRONIN, JAMES T. COUGHLIN, Committee. 4 1 1 ^ I 1 I r P I \ t i \